Oil surges to new 11-month high above $77

NEW YORK (Reuters) - Oil rose on Friday, hitting an 11-month high above $77 a barrel on speculative buying as North Sea production problems and forecasts for rising demand tightened the supply outlook.

Oil has gained more than $6 in two weeks on a wave of buying by funds during the U.S. summer vacation season, when demand for gasoline peaks in the top oil-consuming country.

Global benchmark crude London Brent settled up $1.17 to $77.57 a barrel. Earlier, it reached an 11-month high of $77.68 -- a dollar short of last August's $78.65 all-time record. U.S. crude gained $1.43 to $73.93 a barrel.

Prices were boosted by news UK North Sea oil and gas production could be affected for weeks after a ship's anchor damaged a pipeline needed to export associated gas to Britain.

Some field operators say oil production was affected by the July 1 closure of the Central Area Transmission System (CATS) gas pipeline.

The disruption also helped push prices for the prompt August Brent contract above later months.

"The Brent market remains the chief locomotive for the bull market here, with pipeline issues that could last for a few weeks resulting in a nearby squeeze that has pushed the nearby futures above the forward market." Tim Evans of Citigroup.

The rising stream of cash from speculative funds also helped drive prices higher.

"A lot of today's rise in crude futures is due to money coming from speculative funds," said Kyle Cooper, director of Research at IAF Advisors in Houston, Texas.

2008 DEMAND GROWTH

Adding to supply jitters was a report by the International Energy Agency which forecast oil demand growth will grow more quickly in 2008 than this year.

But the West's energy watchdog also but demand growth for this year after receiving new data for 2006, and said higher output and refinery capacity should ease pressure on supply.

Some experts said the report pointed to a need for producer group OPEC to open the taps and pump more oil.

"The obvious consequence is an increased need for OPEC crude," said Barclays Capital in a research note.

Dealers remain anxious over supplies from countries such as Nigeria and Iran, but most traders attribute much of oil's latest rally to a fresh infusion of fund money.

"There is no lack of crude supply fundamentally, but funds are betting on a more bullish market, hence a great deal of buying," said Tetsu Emori of Astmax Futures in Tokyo.