The US oil prices surged more than two percent to push above $40 a barrel on Tuesday after a weekend attack on Saudi Arabia, which left 22 people dead but did not interrupt oil flows from the world's biggest exporter.
Oil markets in London and New York were shut on Monday for public holidays. By 0159 GMT, US light crude stood at $40.50, a rise of 62 cents.
Analysts doubt US crude will break new ground above a 21-year peak this month at $41.85 a barrel, but say the Khobar attack served as a sharp reminder of the vulnerability of already stretched global supplies.
"This is a knee-jerk response to the weekend's events, but I expect fundamentals to reassert themselves," said David Thurtell of Commonwealth Bank of Australia, referring to the upcoming meeting of Opec ministers on Thursday.
"A number of Opec and non-Opec producers are coming out and saying they are squeezing out a little more crude, which helps on the supply side," said commodities strategist Thurtell.
State oil company Saudi Aramco has vowed to keep supplies flowing, which are currently estimated at more than nine million barrels per day (bpd).
Saudi Arabia's leaders rushed to assure the world they were in full control after the Khobar attack, the second major strike in a month on the Saudi oil industry. But Britain warned more strikes were probable in the kingdom, which holds about one quarter of global petroleum reserves.
"(Attacks) are clearly possible. I would go further than that and say they are probable," said Britain's ambassador to Saudi Arabia, Sherard Cowper-Coles.
Muslim militants killed five foreign workers at a Saudi petrochemical plant in the Red Sea town Yanbu at the beginning of May, and saboteurs have twice targeted oil infrastructure around Iraq's key crude export terminal at Basra.
Khobar has no production, export or refining facilities but Western oil firms have offices and housing in the city 400 km (240 miles) north-east of Riyadh.
The kingdom's well protected energy infrastructure has yet to be struck by sabotage, but some dealers fear emboldened fighters may shift from soft targets to production and export facilities.
Traders have already priced in a risk premium due to accelerating violence in the Middle East, home to two-thirds of world petroleum reserves. Analysts say between $5 and $8 a barrel reflect jitters of sabotage on oil infrastructure.
The Khobar attack came five days ahead of a meeting of Opec producers, for which Saudi Arabia has proposed an increase to production limits by between 2.0 million and 2.5 million bpd to cool sky-high oil prices that threaten to stunt economic growth.
Prices have shot up about 25 percent since the end of 2003 on instability in the Middle East and as demand has risen faster than expected, especially in Asia and the United States. Low global fuel stocks have also helped drive prices higher.
The Organisation of the Petroleum Exporting Countries is already pumping more than two million bpd above the existing formal ceiling of 23.5 million bpd.
Opec ministers will meet in Beirut on Thursday to discuss the output rise. Any fresh supply would largely come from Saudi Arabia, which has a capacity to pump about 10.5 million bpd.
Kuwait said on Monday it had ramped up production by 150,000 bpd from about 2.2 million bpd. Oil Minister Ahmad al-Fahd al-Sabah said the country could reach a maximum output of 2.45 million bpd, or a little above its existing Opec quota of just over 1.8 million bpd.
Qatari Oil Minister Abdullah al-Attiyah arrived in Beirut on Monday and said Doha was in full support of a rise in Opec's production ceiling.
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