London, Sept. 23 (Reuters): War fever drove US oil prices to a new 19-month high on Monday as dealers took fright at the growing threat of a US assault on Iraq.
Benchmark US crude oil jumped 41 cents to $ 30.25 a barrel by late morning in London, after setting a high of $ 30.48, its highest level since February last year.
North Sea Brent gained 37 cents to $ 28.80, close to its highest level in a year.
Dealers said Baghdad’s decision to reject any new U.N. resolution on Iraq, combined with Israel’s siege of Palestinian leader Yasser Arafat’s Ramallah headquarters drove the gains.
“The US wants a new resolution and Saddam is rejecting that—that’s bullish. With Ramallah as well, the tension is getting very high,” said Gary Ross, head of PIRA Group consultants in New York.
Sustained tension in West Asia, which pumps a third of the world’s crude, has already driven oil prices up 50 per cent this year.
Dealers said the threat of a US-led strike on Iraq grew after Baghdad vowed on Saturday to reject any new Security Council resolution, which differed from an agreement reached with the U.N. secretary-general to readmit weapons inspectors.
The West Asia-dominated Opec cartel has said it will move to make up for any supply disruptions, but could not guarantee to quell a speculative oil price spike driven by war fears.
Opec last week opted to hold official output limits at the lowest level in a decade, defying consuming countries calls for more oil ahead of the northern winter.
“I cannot believe Saudi Arabia will let the market overheat for any length of time,” said Raad Alkadiri of Washington’s Petroleum Finance Company.
“They have signalled time and again they are willing to make up for any shortfall. Their credibility as the world’s strategic supplier demands that.”
Economists have warned the fragile US and Asian economies are in no state to absorb further gains in oil prices, which hit drivers at the gasoline pump, eat into company profits and hamper growth.
Opec has adopted a formula to raise output automatically if its reference price exceeds the top end of its $ 22-$ 28 per barrel target range for more than 20 days. The basket was last valued at $ 27.60 on Friday.
However, Opec president Rilwanu Lukman on Monday was reluctant to confirm the use of the trigger when asked if the expiry of the 20-day period would automatically release more oil.
“Under normal circumstances yes, but I don’t know whether these circumstances are normal,” Lukman said. “After 20 trading days it should be clear what is happening.”
Opec argues that current high prices contain a premium relating to speculative fears about Iraq, which supply from Opec would not directly address.