Oil prices above $107 a barrel after Basra bombing

Crude prices, which already spiked by nearly US$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. Basra Rumaila South and North oil fields produce around 1.3 million barrels per day. The city also 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 US$1.11 to fetch US$107.01 a barrel by noon in Europe in electronic trading on the New York Mercantile Exchange. The contract rose US$4.68 to settle at US$105.90 a barrel Wednesday. Wednesdays spike followed the release of data by the U.S. Energy Departments 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 past years. But the inventory report stoked worries that stockpiles of gasoline are falling right when analysts would like to see them rising - in advance of 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, its 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. "(Gasoline) stock levels are at a higher than normal level, so they've pulled back on production, and this is why we've seen a fairly sharp drop in (refinery) utilization rates," Pervan said.

Valero Energy Corp. cut output at its Corpus Christi, Texas, refinery due to high supplies and falling demand, Dow Jones Newswires reported Wednesday. While gas prices are near records, they have not kept pace with crude's recent rally. "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. Many investors view weak economic news as a sign that the U.S. Federal Reserve will cut interest rates more sharply than expected later this year. Lower interest rates tend to further weaken the dollar, which boosts oil prices.

In other Nymex trading, heating oil futures rose by close to 3 cents to US$3.07 a gallon (3.8 liters) while gasoline prices corrected by just over a penny to US$2.7313 a gallon. Natural gas futures dropped by more than a penny to US$9.558 per 1,000 cubic feet.

In London, Brent crude gained 87 cents to US$104.86 a barrel on the ICE Futures exchange.