NEW YORK (CBS.MW) -- Crude futures closed back above $29 a barrel Monday as the potential of a U.S. attack on Iraq prompted market concerns over a disruption in oil exports out of the Middle East.
October crude closed at $29.28 a barrel, up 65 cents on the New York Mercantile Exchange. The contract reached an intraday high at $29.49.
Last week, OPEC members said they would supply extra oil for world markets to offset any disruption in exports from Iraq, but investors are now concerned that a war with Iraq could send shock waves throughout the entire oil-rich Middle East.
"OPEC says that it will cover any supply shortfall, but an outright war in the Middle East will nevertheless have destabilizing effects throughout the region," said Thorsten Fischer, an economist at Economy.com
"The market is not worried about the loss of Iraqi oil alone ... the worry is that an attack on Iraq will spill over into other countries in the Gulf creating unrest and turmoil there and thus leading to supply disruptions," he said.
John Mesrobian of Constantinople Advisors said "if instability hits Saudi Arabia, which is possible and should not be discounted, oil will shoot much higher." A spike above $45 is a possibility, he added, if conflict in the Middle East involves Saudi Arabia.
OPEC dilemma
Adding to the oil market's uncertainty: OPEC appears concerned that if it increases production quotas during its meeting in Osaka, Japan on Sept. 19, "there will be a glut of oil if demand drops in the spring," Fischer said.
Still, OPEC has exceeded their current output quotas by 7 percent to 8 percent because "it is just too tempting," he said. "They need the additional revenues and prices are still high due to the risk premium."
As a result, Fischer believes that no matter what the cartel announces next month, OPEC's production is set to increase.
In step with the gains in crude, September heating oil climbed by 1.21 cents to 75.11 cents a gallon and September unleaded gasoline rose 2.59 cents to 82.11 cents a gallon.
Also on Nymex, September natural gas climbed by 13 cents to close at $3.617 per million British thermal units.
This week, traders will keep a close eye on the latest report on U.S. supplies due from the American Petroleum Institute after the close of trading Tuesday afternoon.
If the market sees another significant drawdown in crude inventories and it's confirmed by the Energy Department early Wednesday, "crude break well through the $30 level and prepare to test $31," said Kevin Kerr, a financial analyst at Weiss Research.
In other futures news, gold for December delivery closed at $311 an ounce, up $2.70 from the previous session, as traders flocked to the precious metals in light of an earlier decline in the broader U.S. market. See Metals Stocks.
The Reuters/CRB Index, a broad-based measure of the commodity futures market, rose to 215.64, up 0.3 percent.
Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.
