Crude tops $107 on Iraq bombing, supply concerns

John Wilen

Associated Press Writer

Oil futures shot back above $107 a barrel Thursday, March 27, after the bombing of an Iraqi oil pipeline diverted investors’ attention away from a stabilizing U.S. dollar.

Retail gas prices, meanwhile, inched up overnight while diesel prices slipped.

The bombing of a key Iraqi oil pipeline Thursday morning appeared to cut oil exports from the southern oil city of Basra, despite oil officials’ statements to the contrary. Dow Jones Newswires reported that exports from southern Iraqi terminals have been reduced to about 1.2 million barrels a day from a normal rate of 1.56 million barrels a day.

“We’re going to be getting less oil because of the explosion,” said James Cordier, founder of OptionSellers.com, a Tampa, Fla., trading firm. For traders, the big factor is that Iraqi oil supplies were cut by a deliberate act of terrorism, Cordier said. That raises the prospect of more attacks, and less oil.

Light, sweet crude for May delivery rose $1.68 to settle at $107.58 a barrel on the New York Mercantile Exchange after earlier rising as high as $108.22. Crude futures, also aided earlier in the week of March 23 by a flagging U.S. dollar, are up 6.6 percent since Monday, March 24.

The news from Iraq added to supply concerns stoked Wednesday, March 26, when the government reported that domestic crude oil inventories were mostly unchanged the previous week, while fuel supplies fell more than expected.

The supply issues temporarily drew investors’ attention from the dollar, which rose slightly against the euro, reversing a trend that sent oil futures surging nearly $5 on Wednesday. A stronger dollar makes hard assets such as energy commodities less attractive as a hedge against inflation than when the greenback is falling. Exacerbating the impact of foreign exchange moves, oil futures are priced in dollars, making them more expensive to investors overseas when the greenback rises.

Despite Thursday’s strength, analysts expect the dollar to soon resume its decline against foreign currencies. The Federal Reserve is expected to cut interest rates several more times this year, and lower rates tend to weaken the dollar.

“I think crude oil is easily going to be testing $120 (in coming weeks),” Cordier said.

At the pump, meanwhile, gas prices rose 0.6 cent Thursday to a national average of $3.267 a gallon, according to AAA and the Oil Price Information Service.

The Energy Department expects gas prices to peak near $3.50 this spring, but many analysts think prices will rise even higher than that.