Oil Futures Jump on Heightened Fears

Crude oil futures jumped 2.2% on Thursday, to the highest level since March 17, after a bomb exploded outside the Jordanian Embassy in Baghdad -- heightening fears that violence will keep Iraqi oil exports below pre-war levels.

Also, natural gas futures surged 7% after a government report said U.S. reserves last week posted the smallest gain since May, increasing concern about shortages next winter.

In the oil market near-term futures in New York rose 69 cents to $32.39 a barrel on news of the bomb blast in the Iraqi capital.

“The bombing is a reminder of how vulnerable the situation in Iraq is,” said John Kilduff, senior vice president of energy-risk management at Fimat USA Inc. in New York. “Some of the predictions of the return of Iraqi production were obviously over-optimistic.”

Iraq, which pumped 3% of the world’s oil before the war to oust Saddam Hussein began in March, has been hampered in efforts to boost output by looting, sabotage and a lack of electricity.

That has helped keep world oil prices high: The New York futures price fell as low as $25.24 a barrel in late April, but has mostly traded above $30 since June 1.

In the natural gas market, near-term futures leaped 34 cents $5.08 per million British thermal units in New York.

Energy companies added 74 billion cubic feet of gas to storage last week, the smallest gain since May 9, the Energy Department said. Analysts surveyed by Bloomberg expected an increase of 79 billion.

U.S. inventories are 31% below the 3.06 trillion cubic feet traders regard as adequate for the beginning of winter, almost double the deficit at this time a year ago. Reserves dipped to a record low in April after North American production declined and a protracted winter stoked demand.

Storage gains have slowed in recent weeks as factories replace costlier oil-based fuels with gas, analysts said.