Oil near $106 on Iraq pipeline explosion
Friday, 28 March 2008

London, Reuters - Oil held near $106 a barrel on Thursday after saboteurs blew up a major pipeline in Iraq, sharply reducing exports from the south of the country.

The gain was limited by strength in the US dollar, which extended its rally after a final government report showed the US economy grew 0.6 percent in the fourth quarter of 2007, in line with expectations.

US crude was up 20 cents to $106.10 a barrel by 1257 GMT, having earlier risen as high as $107.70. London Brent crude The attack on the pipeline in southern Iraq came on the third day of an Iraqi military operation against fighters loyal to Shia cleric Moqtada al-Sadr in the oil port of Basra.

The resulting blaze was quickly extinguished and officials said efforts were under way to get shipments back to normal. It is the first time since 2004 that the southern supply route has been disrupted. "This morning saboteurs blew up the pipeline transporting crude from Zubair 1 by placing bombs beneath it.

The pipeline was severely damaged," a Southern Oil Company official told Reuters. "Crude exports will be greatly affected because this is one of two main pipelines transporting crude to the southern terminals. We will lose about a third of crude exported through Basra," he said.

Iraq exported about 1.54 million barrels per day from Basra in February. Overall Iraqi oil exports have only recently returned to a rate similar to that before the U.S.-led invasion. Officials in Basra had different views about how long it would take to restore supplies and the seriousness of the incident.

Officials in Baghdad, by contrast, were optimistic the damage could be contained. Oil's move up followed a gain of almost $5 on Wednesday prompted by a drop in fuel inventories in top consumer the United States and as a weak dollar prompted investors to move money back into commodities.

Gasoline stocks fell by a larger-than-expected 3.3 million barrels and distillates dropped 2.2 million barrels, also more than forecast, the Energy Information Administration said. Analysts say the weak dollar has prompted investors to buy oil and other commodities as a hedge against inflation, while dollar strength can have the converse effect.

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