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. Last Updated: 07/27/2016

Oil Hits 2-Year High Over Iraq, Venezuela

SINGAPORE -- Oil prices rose to a two-year high on Tuesday as supplies remained choked off from strikebound Venezuela and the looming threat of war in Iraq continued to stoke fears of disruptions to Middle East crude flows.

U.S. light crude hit a peak at $32 per barrel, the highest since January 2001 and a jump of $5 since workers in Venezuela began a strike against President Hugo Chavez three weeks ago.

Oil has surged 60 percent this year, raising concerns that an increase in energy costs could endanger the fragile global economy.

"It's a drag on economic growth. It's a tax on consumers and businesses and general geopolitical tensions mean that investors are more reluctant," said Frank Packer, senior economist at Nikko Salomon Smith Barney in Tokyo.

Benchmark crude prices in London and New York leapt almost $1.50 per barrel Monday after the United States and Britain indicated at the weekend that the prospect of war in Iraq was increasingly likely in early 2003.

Adding to war speculation, Iraqi forces shot down an unmanned U.S. spy plane in the southern "no-fly" zone in the first downing of a U.S. aircraft since a UN resolution last month gave Iraq a final chance to give up weapons of mass destruction or face a military attack.

Baghdad denies any stockpiling of biological, chemical or nuclear arms.

Iraq is the eighth-largest oil exporter, selling about 2 million barrels per day overseas. Traders also fear any war may disrupt crude supplies from other producing countries in the Middle East, which pump a quarter of world oil needs.

Independent oil analyst Simon Games-Thomas in Sydney said the latest price spike was likely to put the U.S. government under increasing pressure to release crude from the nation's 599 million barrels of emergency reserves.

"There will be political pressure to protect the U.S. economy. They won't want oil to hammer any economic recovery," Games-Thomas said.

The strike in Venezuela, which has crippled oil exports from the fifth-biggest exporter for more then three weeks, has crimped about 13 percent of U.S. petroleum supplies at a time when demand in the biggest oil consumer is rising to a winter heating peak.

Venezuela's crude production has plummeted to under 200,000 bpd since the opposition-led strike began on Dec. 2 from just above 3 million bpd in November.

The impact of the Venezuela outage is likely to appear in data released late every Tuesday by the American Petroleum Institute on the health of U.S. commercial fuel stocks.

Top oil exporter Saudi Arabia said Saturday that the OPEC producers' cartel remained committed to fair oil prices and plugging any supply shortages. The 11-member Organization of the Petroleum Exporting Countries accounts for two-thirds of global oil exports.

Under an informal output mechanism, OPEC aims to keep the price of a basket of reference crudes in a target band of $22 to $28 per barrel by increasing supply by a minimum 500,000 bpd if prices rise above the top end of the range for 20 working days. OPEC's basket price stood at $29.64 a barrel on Friday, before the price rally this week.