LONDON, Feb 27: Oil prices rocketed up to almost $40 a barrel in New York on Thursday for the first time since the 1990-91 Gulf War as anxieties grew about a looming war in Iraq and depleted US oil stock levels.

In New York, benchmark light sweet crude for April delivery surged over $2 to $39.99 in late morning trade, levels not seen since October 1990 in the wake of the Iraqi invasion of Kuwait.

It later fell back to $39.25 a barrel, still up $1.55 from the previous close.

Traders chased prices higher on fears that a war in Iraq could be just around the corner, threatening disruption to Middle East supplies while US oil stocks are close to a 27-year low.

“A potentially supply-disruptive war may begin at any moment,” said Mike Fitzpatrick, oil trader at Fimat USA in New York.

The price of reference London Brent North Sea crude for April delivery rose to $33.20 in late trading from $33.07 at the close of the previous session.

Traders were fretting about the possible loss of Iraq oil while stocks of US crude oil and heating fuels are already reaching alarmingly low levels, analysts said.

“Crude oil inventories remain about as low as they possibly can be in the States and then you throw in on top of that the geopolitical concerns and you’ve got the recipe for crude moving up towards $40,” said JP Morgan analyst Paul Horsnell.

“In terms of the key oil products we’re just running out,” he added.

Analysts said that the decision taken last month by the Organization of Petroleum Exporting Countries (Opec) to pump more oil to compensate for a strike in Venezuela had come too late too quell a price spike.

“We had always warned that the market was on a knife-edge: additional crude supplies were expected to arrive in the coming weeks, but it was unclear whether they would arrive in time to prevent a squeeze in prices,” said GNI-Man Financial analyst Lawrence Eagles.

“They did not. The squeeze is now well and truly underway, underpinned by cold weather demand and a surge in natural gas prices,” he added.

The market found little solace in comments from the Opec oil cartel reassuring consumers it has four million barrels of spare capacity available to avert supply shortfalls and will not use oil as a weapon if war breaks out against Iraq

“We won’t use oil as a weapon,” said Opec Secretary General Alvaro Silva Calderon.

“We have around four million bpd of spare capacity. We are ready to put this amount on the market if necessary,” he told reporters in Vienna.

But analysts cast doubt on the comments.

“He talked about having four million bpd of spare capacity and nobody really believes that,” said Horsnell.

“I think JP Morgan is more optimistic than most on how much spare capacity there is within Opec and we don’t think there’s much more than two million bpd left and there are others who have lower numbers than that,” he added.—AFP