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. Last Updated: 07/27/2016

War Fever Sends Oil Over $30 Per Barrel

OSAKA, Japan -- War fever drove U.S. oil prices to a new 19-month high Monday as dealers took fright at the growing threat of a U.S. assault on Iraq.

U.S. crude futures in midday trading jumped 57 cents to $30.41 a barrel after setting a high of $30.48.

Dealers said Baghdad's decision to reject any new United Nations resolution on weapons inspections, combined with Israel's siege of Palestinian leader Yasser Arafat's Ramallah headquarters drove the gains.

"The U.S. 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 of Petroleum Industry Research Associates in New York.

Sustained tension in the Middle East has already helped force up oil prices some 40 percent this year on fear of a supply disruption in a region that pumps a third of the world's crude.

The threat of a U.S.-led strike on Iraq grew after Baghdad vowed Saturday to reject any new Security Council resolution differing from an agreement reached with the UN secretary-general.

The Middle East-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 fever.

The Organization of the Petroleum Exporting Countries 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.

On Monday, the cartel declined to commit to pumping more oil before its next meeting in December, even if crude stays above the $28 top end of their targeted price range.

Gains have accelerated on word from the International Energy Agency, which controls emergency stocks among 26 industrialized oil consumer nations, that it would not order a release if a war stopped only Iraqi exports.

"No, I don't think so, no, because we have had such an erratic performance in output from Iraq,'' IEA executive director Robert Priddle said in an interview.

Iraqi exports have been running well below normal because of tough pricing controls imposed by the United States and Britain in its UN oil-for-food program.

Economists have warned the fragile U.S. 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 production automatically if prices go above the $28 top end of its target range for a basket of its crude oils for more than 20 days. The basket was last valued at $27.45 Thursday.

OPEC president Rilwanu Lukman on Monday was reluctant to confirm the use of the trigger when asked if the expiration 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.''