Oil near $100 on Middle East Unrest image

Oil prices rose above $100 a barrel Friday amid signs of growing U.S. crude demand and threats of tighter Middle East supplies.

Crude oil supplies dropped to a three-year low at 323.6 million barrels but remained in the upper limit of the average range for this time of year.

Tensions between Iran and western nations, along with unrest in Syria, Bahrain, Kazakhstan and Iraq have raised worries that oil supplies could be disrupted if the unrest spreads or grows more serious.

“Iran might not passively wait for sanctions to be applied and could act unilaterally to embargo supplies,” J.P Morgan said in a report.

“We are also concerned about Iraq, where political uncertainties seem to be rising following the U.S. troop pullout.”

iran-hormuzAdding to the geopolitical fear premium for oil, Iranian state television quoted a navy commander as saying the Islamic Republic’s navy will conduct a 10-day war game in an area from east of the Strait of Hormuz to the Gulf of Eden starting on Saturday.

“The manoeuvres will be carried out with the intention of displaying the determination, defensive and deterrent power of the Iranian armed forces as well as relaying a message of peace and friendship in the Strait of Hormuz, the Sea of Oman and the free waters of the Indian Ocean,” Navy Commander Habibulah Sayari said.

“Iran’s military and Revolutionary Guards can close the Strait of Hormuz. But such a decision should be made by top establishment leaders,” he said.

The move, which increases the risk of military confrontation with the United States, has the potential to temporarily choke off oil exports from the Middle East, drive up international energy prices and damage the global economy.

Average retail gasoline prices rose a penny on Thursday to $3.22 per gallon.