Pipeline Bombing in Iraq Sends Oil Price Soaring
Oil reached $107 as militia fighting continued for third day in a row.
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.
Levels are still higher than in pat years. But the inventory report stoked worries that stockpiles of gasoline are falling right when analysts would like to see them rising — before the peak summer driving season. Gasoline inventories slid 3.3 million barrels last week, more than four times the decline analysts had expected.
"The gasoline stock movement was probably quite supportive, it's the second week in a row now we've seen a larger than expected drop in U.S. gasoline stocks," said Mark Pervan, a commodity strategist at ANZ Bank in Melbourne, Australia.
The EIA reported that U.S. refinery activity also dropped, which analysts attributed to some refiners cutting gasoline production due to low profit margins. Despite the most recent declines, gasoline inventories are 9 percent higher than a year ago.
"Refinery runs are now at the lowest level since the end of October 2005," noted Vienna's JBC Energy, in its daily newsletter.
Crude oil inventories, meanwhile, were unchanged. Analysts surveyed by Dow Jones Newswires had expected crude supplies to rise 1.7 million barrels.
Pervan warned that the steadiness in crude oil inventories despite a decline in refinery utilization was an indication that U.S. crude demand was falling, which could lead to a drop in oil prices in the weeks ahead.
"What the U.S. is doing is to try to match their crude oil stocks to the low refinery capacity by pulling back on their imports," Pervan said. "That should start to manifest itself in lower oil prices in the near term."
Oil prices were also supported by U.S. economic news. The Commerce Department said new home sales fell last month to a 13-year low, and that orders for durable goods fell in February when analysts had expected an increase.
In other Nymex trading, heating oil futures rose by close to 3 cents to $3.07 a gallon (3.8 liters) while gasoline prices corrected by just over a penny to $2.7313 a gallon. Natural gas futures dropped by more than a penny to $9.558 per 1,000 cubic feet.
In London, Brent crude gained 87 cents to $104.86 a barrel on the ICE Futures exchange.
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Associated Press writer Gillian Wong contributed to this report from Singapore