Pipeline Bombing in Iraq Sends Oil Price Soaring

March 27, 2008— -- Oil prices rose by more than a dollar Thursday, as the bombing of a key Iraqi pipeline extended a buying spree spurred by an anemic dollar and lower U.S. fuel inventories.

Crude prices, which already spiked by nearly $5 on Thursday, were propelled higher by the second bombing in a week in Basra, where Iraqi security forces have been clashing with Shiite militia fighters.

Oil Minister Hussein al-Shahristani said that ongoing clashes would not affect oil exports and drilling operations. But with an average of 1.54 million barrels a day transiting the southern city last month, an official, who demanded anonymity because he was not authorized to comment, acknowledged that the blast could impact crude sales.

Iraq's average production for February was 2.4 million barrels per day. Exports averaged 1.93 million barrels per day during that month. The huge portion of oil output comes from Basra Rumaila South and North oil fields that produce around 1.3 million barrels per day.

The bomb exploded underneath the Zubair-1 pipeline that sends crude oil from the Basra Zubair oil field to tanks for Iraq's two exporting terminals on the Gulf: al-Umaiya and Basra, according to an official in Basra.

On Tuesday night, a bomb damaged a domestic oil pipeline that links the Noor oil field in the southern Maysan province to the refinery in Basra. It was expected to take several days to repair the damage.

Basra is home to one of Iraq's three largest oil refineries, the Shuaiba refinery which has a capacity of 160,000 barrels a day but has been functioning below capacity at about 100,000 barrels per day.

Light, sweet crude for May delivery added $1.11 to fetch $107.01 a barrel by noon in Europe in electronic trading on the New York Mercantile Exchange. The contract rose $4.68 to settle at $105.90 a barrel Wednesday.

Wednesday's spike followed the release of data by the U.S. Energy Department's Energy Information Administration, showing that U.S. stockpiles of gasoline, heating oil and diesel fuel fell more than forecast last week.