UPDATE 9-Oil prices jump after U.S. air strike kills top Iranian commander

* U.S. air strike kills Iranian general in Iraq
* Iran's supreme leader vows revenge
* U.S. crude stockpiles drop sharply -EIA

(Updates to settlement)
By Devika Krishna Kumar
NEW YORK, Jan 3 (Reuters) - Oil prices jumped to the highest
level in more than three months on Friday after the United
States killed a top Iranian military commander in Iraq, sparking
fears that escalating conflict in the region could disrupt
global oil supplies.
An air strike at Baghdad airport killed Major-General Qassem
Soleimani, architect of Iran's spreading military influence in
the Middle East, prompting Iran's supreme leader, Ayatollah Ali
Khamenei, to vow revenge. Brent crude LCOc1 ended the session up 3.6% or $2.35 at
$68.60 a barrel, off the session peak of $69.50, the highest
level since the mid-September attack on Saudi oil facilities.
West Texas Intermediate (WTI) crude CLc1 settled up $1.87
or 3.1% at $63.05 a barrel. The session high was $64.09 a
barrel, its highest since April 2019.
U.S. President Donald Trump on Friday said that Soleimani
was planning to kill Americans.
Tensions between the United States and Iran have flared over
the past year as Washington reimposed sanctions on Tehran and in
the aftermath of a missile and drone attack on oil installations
of the Saudi Aramco company for which U.S. officials blamed
Iran.
The Soleimani killing has brought those tensions back to the
forefront, fanning worries about a squeeze on crude supplies,
though the effect of the increased geopolitical risk remains
unclear.
"The market is trying to assess whether we'll see a supply
disruption, if any," said Andy Lipow, president of consultants
Lipow Oil Associates.
"Iran has already seen their exports cut to minimal volumes;
they have little to lose in the way of crude oil exports."
More than 840,000 front-month WTI contracts changed hands,
while Brent trading volumes surpassed 464,000 lots, both the
highest since the Saudi attacks.
Concern shifted to potential retaliation as the United
States is sending nearly 3,000 additional troops to the Middle
East as a precaution amid rising threats to American forces in
the region, U.S. officials said. "The Iranian retaliation could take the form of a quick
response by proxies against U.S. allies and assets. One-off
incidents targeting Gulf oil flows are possible, as are attacks
on Gulf oil infrastructure, after the Abqaiq incident did not
trigger a U.S. military response," said Paul Sheldon, chief
geopolitical risk analyst at S&P Global Platts.
The U.S. embassy in Baghdad on Friday urged all citizens to
depart Iraq immediately, and dozens of U.S. citizens working for
foreign oil companies in the Iraqi oil city of Basra were
preparing to leave, company sources told Reuters. All oil fields across the country were operating normally
and production and exports were not affected, Iraq's Oil
Ministry said in a statement. It said no other nationalities
were departing. The oil futures market is already beginning to price in
near-term supply tightness. The spread between the December 2020
and 2021 U.S. crude futures contracts CLZ0-Z1 as well as the
corresponding spread for Brent LCOZ0-Z1 , popular trades in oil
markets, surged to the highest level since October 2018.
"If the situation worsened, and oil supplies were disrupted,
this could have broader economic and financial market impacts
through a sharp rise in crude oil prices," UBS Global Wealth
Management's chief investment officer, Mark Haefele, said in a
note.
"However, spare capacity in oil remains adequate (OPEC's and
Russia's spare capacity is around 3.3 mbpd). And, we still
expect an oversupplied oil market in 2020."
Oil prices also found support after data showed weekly U.S.
crude stockpiles fell by the most since June. EIA/S