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Oil Prices Rise Amid Iraq War Uncertainties, Nigeria Strife

Oil prices rose on Monday as violence in Nigeria spread to the oil-rich Port Harcourt region, and U.S. and Iraqi troops battled south of Baghdad in the 12th day of war.

Pre-election violence in Nigeria has already slashed oil output by 40 percent, at a time when U.S refiners were expecting to use its high-quality crude to replenish low gasoline stocks for summer vacation driving.

U.S. crude futures added 61 cents to $30.77, building on a 12 percent rally last week. Benchmark Brent crude oil climbed 83 cents to $27.18 per barrel.

"It is an uncertain outlook in the Gulf, and Nigeria is at the forefront of traders' minds, so it's not a market to be short," said Paul Goodhew, a broker at GNI-Man.

Nigerian trade unions were in talks with the government on Monday seeking to avoid a three-day strike due to start on Tuesday, which could create new problems for oil companies.

Clashes in the eastern Port Harcourt area on Sunday raised fears the situation could worsen.

Oil prices are recovering slowly after a dramatic 25 percent plunge in the week Washington launched the first attack on Iraq.

The U.S. occupation of Iraq is taking longer than many traders expected, and military analysts now see it dragging on for another month or even longer.

A fresh wave of missiles hit Baghdad on Monday as U.S. forces clashed with Iraqi troops south of the capital.

Western oil inventories were already tight before the war on Iraq, which ranked as the world's seventh largest exporter.

"Brent should be closer to $28 than $25 because the tight stock situation has not been resolved," said Leo Drollas at the Centre for Global Energy Studies.

Other members of the Middle East-dominated oil cartel OPEC have ramped up output to cover for Iraq, with U.S. ally Saudi Arabia hitting its highest level for 21 years in March.

"It makes commercial sense to increase production because they gain on the volume without the price dropping too much," Drollas said.

The White House said on Monday it had seen no evidence of a severe disruption in oil supply, despite the problems in both Iraq and Nigeria.

Western oil importers like the United States can tap huge government-controlled reserves in case of a supply shortage.