Mideast Jitters Vault Oil Prices to a Record High : Energy: Futures rise $1.45 to close at $40.40 a barrel after a bloody clash in Jerusalem and saber-rattling by Iraq.

Oil prices jumped nearly a dollar and a half per barrel to record highs of more than $40 a barrel Tuesday as traders reacted to heightened tensions in the Middle East after the killing of at least 19 Palestinians in Jerusalem on Monday and new threats by Iraqi President Saddam Hussein.

Hussein’s calls Tuesday for retaliation against the shootings overwhelmed earlier hopes for a diplomatic resolution of the Persian Gulf standoff, driving futures prices for crude oil as high as $40.95 a barrel during the day.

It was the highest price for a crude oil futures contract since trading began in 1983.

The low for the day was $40.10, equal to the previous record high reached Sept. 27. The price of crude oil for November delivery ended Tuesday’s trading up $1.45 from Monday’s close--or $40.40 a barrel on the New York Mercantile Exchange, a record closing price.

On cash markets, where oil is traded for immediate delivery, the commodity was even higher Tuesday, with some U.S. and foreign grades being offered at prices approaching $42 a barrel.

At such levels, some analysts believe, U.S. crude oil is now commanding the highest prices ever. Foreign grades of crude have been sold on cash markets at prices well above $40 a barrel in the past.

“Another $1.50 worth of war premium has worked itself into the market again,” one futures broker said. The problem is not inadequate world supplies of oil but fear of shortages, he added. “There’s plenty of oil. The problem is, as long as there is a fear of supply disruption, even momentarily, prices will not go down.”

Prices of refined products also finished higher Tuesday. Unleaded gasoline for November delivery was up 4.51 cents a gallon to 98.26 cents. Heating oil for November delivery was up 3.19 cents a gallon at $1.0615.

Prices of crude oil for delivery in later months were also up, but those increases were limited by exchange rules to $1 a barrel.

Traders now consider $42 or $42.50 a barrel the next level the market will test, perhaps in the next few days, barring unforeseen news.

Traders attributed the increases in part to technical factors but mainly to anxieties about the Middle East stalemate.

The Palestinians died Monday when Israeli police shot into a crowd on Jerusalem’s Temple Mount--which holds both Judaic and Islamic holy places--after some Palestinian protesters threw rocks at Jews worshipping at the nearby Western Wall. Palestinians were protesting reports that a group of fundamentalist Jews planned to lay a foundation stone for a new temple on the site of one of Islam’s holiest shrines, the Dome of the Rock.

“There’s a fear that, because of this uprising, it may hinder diplomatic efforts to end the crisis, and if that’s true, the only option left is a military solution,” said Andrew Lebow, an analyst with E. D. & F. Man International Futures Inc. in New York.

Those fears were compounded Tuesday when Hussein responded to the incident by demanding in a message delivered on Baghdad Radio that Israel abandon Arab lands. He also said Iraq possessed a new missile that could reach targets hundreds of miles away and would strike “when the time of reckoning comes.”

Traders were apparently unimpressed with President Bush’s reaction, in which he chided Israeli security forces but dismissed Hussein’s comments.

Meanwhile, retail prices for self-serve unleaded gasoline are averaging $1.37 a gallon, up 2.4 cents since last week and 29.5 cents a gallon since Aug. 1, the day before Iraq invaded Kuwait, the Automobile Assn. of America reported.

The association’s record high for self-serve unleaded is $1.388 per gallon before the Easter weekend in 1981.

The association, which surveys gasoline prices nationally, said that prices were up in all regions of the country but that they rose most in the West and least in the Midwest last week.