Critical Times

Oil spikes above $US107

From correspondents in New York | March 28, 2008

OIL prices leapt higher today as concerns about tight supplies were stoked by news that saboteurs had blown up an Iraqi export pipeline, traders said.

New York’s main oil contract, light sweet crude for delivery in May, rose $US1.68 to close at $US107.58 per barrel. In intraday trade it had hit $US108.22.

In London, Brent North Sea crude for May settled $US1.01 higher at $US105. The session peak was $US105.60.

“The combination of a weaker trending dollar and tightening supply are a potent force driving investors back to the market,” said Mike Fitzpatrick, an analyst at MF Global.

Oil prices, which had soared yesterday on the back of renewed US dollar weakness and a bullish US energy inventories report, shot higher today after an attack on a key Iraq oil pipeline.

One of Iraq’s two main oil export pipelines near the southern city of Basra was blown up by saboteurs amid escalating fighting.

Historically, two-thirds of Iraq’s oil output came from southern fields and flowed through Basra. Ninety per cent of Iraqi oil exports transit the port city, the country’s only access to the Gulf.

“It should be noted the other line to Basra isn’t running at full capacity because of power issues resultant of the fighting,” said Eric Wittenauer at Wachovia Securities.

Oil prices also continued to be supported by a weaker-than-expected energy stockpiles report in the United States, the world’s biggest energy consumer, dealers said.

The US government said yesterday that crude inventories were unchanged at 311.8 million barrels in the week ending March 21.

That contrasted sharply with market expectations for a weekly gain of 1.8 million barrels.

“Oil futures were higher Thursday, extending gains … amid the broad weakness in the US dollar and a bullish US fuel inventories report,” said Sucden analyst Andrey Kryuchenkov.

Global supplies are being further pressured by a decision earlier this month by the Organisation of the Petroleum Exporting Countries to maintain the cartel’s output levels.

Oil prices have been supported by long-term concerns over the ability of producers to meet rising energy demand from the developing world, notably China and India.