Oil prices climbed on Monday as fears that violence in big Middle East producers Iraq and Saudi Arabia might disrupt crude flows and thwart the OPEC producer cartel's efforts to cool prices.

London benchmark Brent crude (search) was up 43 cents at $35.87 a barrel. New York light, sweet crude, was up 17 cents at $38.28 a barrel at the New York Mercantile Exchange (search), still catching up with Brent's losses on Friday when U.S. markets were closed.

Oil prices settled into a new range last week after falling some 10 percent from record highs in early June as OPEC (search) agreed to raise output limits and lean U.S. fuel inventories began to recover.

"The fall from the $42-plus highs of two weeks ago has been precipitous and will be difficult to maintain," said brokers Fimat in a report.

OPEC's president also said prices were likely to reverse their decline due to persistent tensions in oil producing countries.

"I see oil prices likely to strengthen at the moment," Purnomo Yusgiantoro, also Indonesia's oil minister, told reporters on Monday. "This is because of political developments."

Middle East violence has fueled oil's rally in recent months, as traders fear oil facilities could be a target for attacks. Prices are up 17 percent since the start of this year.

Militant group al-Qaeda's activities in Saudi Arabia, the world's top oil supplier, escalated at the weekend with the kidnapping of an American engineer and the killing of a U.S. national, the sixth attack on Westerners in as many weeks.

The attacks have rattled expatriates and prompted fears of a mass exodus as al Qaeda steps up its campaign to oust the kingdom's pro-U.S. monarchy and drive out Westerners.

Two weeks ago, 22 people were killed in a shooting and hostage-taking rampage in the oil city of Khobar. But so far there has been no disruption to the kingdom's over nine million bpd output.

"Saudi Arabia is key to the oil market right now," said Tony Nunan, a manager at Mitsubishi Corp's international petroleum business in Tokyo. "It's a huge risk, all it would take is one bomb in the right place."

Prices are also being supported by the threat of rising violence in Iraq ahead of the June 30 handover of power to the Iraqis.

A suicide car bombing in the heart of Baghdad killed at least 13 people on Monday, including five foreign contractors in a civilian convoy of Iraq's U.S.-led administration.

It was the second suicide car bombing in the Iraqi capital in 24 hours and coincided with a wave of assassinations aimed at the new interim government appointed to take over from the U.S.-British occupation authorities on June 30.

Attacks on a pipeline running from Iraq's northern Kirkuk oilfields have stopped the flow of oil exports from the Turkish Mediterranean port of Ceyhan since May 31, leaving the country reliant on 1.65 million bpd of supplies shipped from Gulf terminals.

Strong demand growth in the U.S. and China has left the world oil supply system with little slack in case of disruption in a major producer, bolstering the sustained price strength.

"Strong and well-diversified global demand growth continues to put a floor under any price declines," said Washington D.C.-based analysts PFC Energy.

But a hike in U.S. interest rates and Chinese efforts to cool down its sizzling economy could yet soften markets, said Jeffrey R. Currie, global head of commodities research at Goldman Sachs International.

"Those factors could push prices into a more stable area of $35," he said at an oil conference in Kuala Lumpur.