Updated from 10:54 a.m. EST

Energy prices soared Thursday following the largest air assault in Iraq since the America-led invasion in 2003.

Oil for April delivery closed up $1.41 to $63.58 on the Nymex. The military operation began this morning north of Baghdad and included more than 1,500 troops and more than 50 aircraft. Iraq has seen its crude output fall 15% over the past four years to 1.7 million barrels per day.

Lower crude exports from Nigeria and a quarrel with Iran over its nuclear ambitions have roiled the energy markets and sent oil prices soaring this year. Nigerian separatists have kidnapped foreign oil workers and attacked the country's pipelines and platforms in a bid to destabilize the federal government and gain a share of the country's petrodollars. Daily oil production is down 25% to 1.6 million barrels.

The U.N. Security Council failed to reach agreement on how to handle Iran's drive to enrich uranium and generate more electricity for its growing population. The council could impose economic sanctions against Iran, though that move is highly unlikely because it would drive up oil prices and lessen world crude supplies. Iran is OPEC's second-largest producer with 4.4 million barrels of oil per day.

Still, Iran has threatened to retaliate and cut its crude exports if the Security Council issues any actions against it.

Against a backdrop of high oil prices and razor-thin stockpiles, energy ministers from the Group of Eight countries met in Moscow Thursday to discuss alternative energies and ways to ensure steady oil supplies. They called for nuclear power development and new investments in transportation, production and refining to help drive down sky-high oil prices.

World tensions have been outweighing plentiful oil stockpiles and keeping crude prices high. On Wednesday, the U.S. Energy Department reported in a weekly update that crude supplies are at their highest level in seven years. Inventories climbed 4.8 million barrels to 339.1 million barrels last week thanks to refinery shutdowns. Seasonal maintenance and operating problems have pushed up supply levels.

Surging crude prices drove up unleaded gasoline by 4 cents to $1.87 a gallon, and heating oil by 3 cents to $1.81 a gallon on Thursday. Gasoline prices have zoomed up 11% this week largely due to ongoing refinery shutdowns. Many refiners are closed for seasonal maintenance as they switch to summer-grade gasoline and start phasing out the use of MTBE, or methyl tertiary butyl ether, an oxygenate that has been linked to water pollution, in favor of ethanol.

The Energy Department has warned that gasoline shortages could erupt next summer as refiners phase out MTBE.

"There are two major concerns by the Department of Energy. The first are the refiners. They cannot co-mingle old and new gas blend for fear of contamination," said Phil Flynn, an energy analyst at Alaron Trading in Chicago. "The second concern is ethanol because capacity in the United States is somewhat limited."

Natural gas added 3 cents to $7.20 per million British thermal units following a light drawdown in stockpiles. According to the Energy Department, gas inventories fell 55 billion cubic feet to 1.8 trillion cubic feet last week. In a Bloomberg survey, analysts were expecting a decline of 64 billion cubic feet.

Warm weather and plentiful supplies have kept natural gas prices low. There is 31% more fuel in storage than last year and 60% more than the five-year average. Surplus inventory comes at a good time because 14% of the Gulf of Mexico's natural gas production still remains off line due to hurricane damage last fall.

Prices could hit new highs as hurricane seasons begins because not all of the Gulf Coast's gas production has returned to production.

"Almost 10% of natural gas production will likely remain shut in before the next hurricane season kicks in," said Rakesh Shankar, an energy analyst with Economy.com in West Chester, Pa. "Early forecasts are already warning about an active hurricane season in 2006."