UPDATE 7-Oil prices jump after U.S. air strike kills top Iranian commander

Devika Krishna Kumar

* U.S. air strike kills Iranian general in Iraq

* Iran's supreme leader vows revenge

* U.S. crude stockpiles drop sharply-EIA (New throughout, updates prices, market activity and comments; new byline, changes dateline, previous LONDON)

NEW YORK, Jan 3 (Reuters) - Oil prices jumped to the highest level in more than three months on Friday after the U.S. killed a top Iranian military commander in Iraq, sparking fears that escalating conflict in the region could disrupt global oil supplies.

Brent crude was up 3.6% or $2.40 a barrel by 11:15 a.m. ET (1616 GMT) at $68.65, just off the session peak of $69.50 a barrel, highest since mid-September when Saudi oil facilities were attacked.

West Texas Intermediate (WTI) crude was up $2.14 or 3.5% at $63.32 a barrel. The session high was $64.09 a barrel, its highest since April 2019.

An early air strike at the Baghdad Airport killed Major-General Qassem Soleimani, architect of Iran's spreading military influence in the Middle East and a hero among many Iranians and Shi'ites in the region.

A U.S. official said Soleimani was planning an imminent attack on U.S. facilities and workers in Iraq, Lebanon, Syria and other countries.

Iran's Supreme Leader Ayatollah Ali Khamenei said harsh revenge awaited the "criminals" who killed Soleimani.

"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.

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 oilfields 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 U.S. regime will be responsible for the consequences of this criminal adventurism," Iran's Supreme National Security Council said in a statement carried by media outlets. "This was the biggest U.S. strategic blunder in the West Asia region, and America will not easily escape its consequences."

Soleimani's Quds Force and its paramilitary proxies in Iraq, Lebanon and Yemen could mount a multi-pronged response.

In September U.S. officials blamed Iran for a missile and drone attack on oil installations of Saudi Aramco, the Saudi state energy giant and world's largest oil exporter. At that time, Washington responded with rhetoric and threats.

Meanwhile, Russia has halted oil supplies to refineries in Belarus amid a contract dispute threatening large Russian oil deliveries to Western Europe. Two trading sources told Reuters Russian oil transit to Europe via Belarus was so far uninterrupted.

Oil prices also were lifted by China's central bank saying on Wednesday it was cutting the amount of cash that banks must hold in reserve, releasing around 800 billion yuan ($115 billion) to shore up the slowing economy. (Reporting by Devika Krishna Kumar in New York, Bozorgmehr Sharafedin in London, additional reporting by Florence Tan and Seng Li Peng in Singapore; Editing by Jon Boyle, Jan Harvey and David Gregorio)