Oil gains $2 on Iraq pipeline outage

By Richard Valdmanis

NEW YORK (Reuters) - Oil rose more than $2 a barrel on Thursday after a bomb attack on a major Iraqi crude export pipeline near fighting in the southern port city of Basra slashed exports from the country by about a fifth.

U.S. crude gained $2.20 to $108.10 a barrel by 2:10 p.m. EDT, boosting this week's gains to more than 6 percent. London Brent crude was $1.26 higher at $105.25.

"Today's action was driven up by the explosion and catching fire of a pipeline in Iraq," said Nauman Barakat, oil trader and senior vice president at Macquarie Futures USA.

The surge in prices followed a jump of almost $5 on Wednesday prompted by a drop in fuel inventories in top consumer the United States and a weak dollar that has prompted investors to move money back into commodities.

A shipping source at Iraq's Basra export terminal said the pipeline attack cut flows on the line to around 1.2 million barrels per day, down 300,000 bpd from average levels, in the first disruption to shipments from Iraq's south since 2004.

Iraq exported 1.54 million bpd of oil in February -- the second month in a row that shipments from the war-torn country had stabilized around pre-invasion levels.

"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.

Iraqi officials said efforts were under way to get shipments back to normal, but opinions varied widely on how long the disruption to the pipeline would last.

Crude was also pulled up by heating oil, which rose more than 3.5 percent. Dealers said the late-season gains were supported in part by news an outage at a major South Korean refinery run by S-Oil forced the company to cancel supply contracts in April.

The jump in oil prices Thursday added to increases on Wednesday that came after a government report showed declines in U.S. fuel stocks as the nation's refineries slowed to their lowest pace since 2005.

Gasoline inventories fell by a larger-than-expected 3.3 million barrels last week and distillates dropped 2.2 million barrels, the Energy Information Administration said.

Analysts said the weak U.S. dollar has also prompted investors to buy oil and other commodities as a hedge against inflation.

(Reporting by Richard Valdmanis in New York, Alex Lawler and Ikuko Kao in London and Fayen Wong in Perth; Editing by Christian Wiessner)