Oil prices all over the world soared Monday when Iraq announced an immediate suspension of oil exports as a way to protest Israel's incursion into Palestinian-controlled areas of the West Bank.
The news prompted a frenzy of buying by traders, who already have to deal with threats of a halt in shipments from Venezuela, the world's No. 4 oil exporter.
International benchmark Brent crude oil last traded $1.01 higher at $27.00 after climbing as high as $27.43, resuming an assault on a six-month high of $28.15 seen last week.
U.S. crude futures stood 34 cents higher at $26.55 at the close.
Iraqi president Saddam Hussein said all oil exports were suspended from Monday for a month or until Israel withdrew unconditionally.
The United States and Europe are the major buyers of Iraqi oil. OPEC says Iraq has a maximum daily production capacity of 2.3 million barrels of crude oil.
Saddam has already called on other Arab producers to embargo the West for its support of Israel, and Libya has backed the call. Fellow Gulf oil exporter Iran has said a total blockade by all Islamic states would be very a effective weapon.
However, Organization of the Petroleum Exporting Countries (OPEC) heavyweights Saudi Arabia and Kuwait have both said they would not join any Iraqi stoppage. The world's No.1 exporter Saudi Arabia has said it had ample capacity to respond to any major disruption.
OPEC Secretary-General Ali Rodriguez said he will consult with cartel oil ministers on Tuesday and the group could hold an emergency meeting to decide policy.
The OPEC has cut production by five million bpd since January 2001 to buoy prices, and in March agreed to extend output restrictions until at least its next meeting in June.
Russia and Norway, which both agreed to join OPEC in crude supply curbs, said on Monday it was too early to reconsider the policy now.
The Arab dominated cartel controls two-thirds of world oil exports and could easily replace lost Iraqi and Venezuelan barrels.
In the U.S., the national price for gasoline increased 4.2 cents a gallon over the last week to $1.41, the Energy Department said late Monday. Fuel prices have soared 27 cents per gallon since early March.
Energy Secretary Spencer Abraham announced several steps to help stabilize U.S. fuel prices, which are expected to rise to the third-highest level in history this summer.
"Higher gas prices are a great concern to this administration because they strain the budgets of America's working families, raise the cost of goods and services, and ultimately create a drag on the economy that can impact the livelihood of working Americans," Abraham said.
He spoke at a news conference where the U.S. Energy Department forecast record gasoline demand and an average nationwide summer price of $1.46 per gallon for regular unleaded gasoline, down 8 cents from last year.
The weekly average gasoline price is expected to peak between $1.52 and $1.62 by June.
Meanwhile, industry sources said Venezuelan oil loadings were halted at the weekend and oilfield output was already down by half, although President Hugo Chavez insisted on Sunday that production and exports were normal.
Venezuelan state oil company executives are protesting against the government's choice of a new board of directors.
Oil market traders said as many as 25 empty oil tankers were at Venezuelan ports waiting to load on Sunday, and one source said production was already cut by 40 percent.
Venezuela supplies about 15 percent of U.S. oil imports. Latest U.S. government data shows it accounted for about 1.4 million barrels per day of crude imports and another 300,000 bpd of refined products such as gasoline and diesel.
President Hugo Chavez announced the sacking of seven dissidents from the state oil company on Sunday, labeling them "saboteurs."
Reuters and the Associated Press contributed to this report.