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Oil price nears US$49 as Iraq violence flares
Updated: 2004-08-20 09:13

Oil prices struck a fresh record just under $49 a barrel on Thursday, spurred higher by renewed violence in Iraq and fresh evidence that strong demand growth in China and India has not been slowed by higher energy costs.

U.S. light crude on the New York Mercantile Exchange jumped $1.48 to $48.75 a barrel, a record in the 21 years that oil futures have traded on NYMEX, before the September crude contract settled at $48.70, up $1.43 for the day.

London Brent crude gained $1.30 to settle at $44.33 a barrel.

U.S. crude oil prices have set record peaks in all but one of the past 15 trading sessions and are up about $11 a barrel, or 29 percent, since the end of June.

Rising world oil demand has left little slack in the system to cope with outages in Iraq where Shi'ite militia have lived up to threats they will target oil infrastructure if U.S. forces do not leave the holy city of Najaf.

Saboteurs on Thursday set fire to the headquarters of the South Oil Co. in Iraq's port city of Basra, witnesses said.

Fierce fighting raged in Najaf on Thursday after rebel Shi'ite cleric Moqtada al-Sadr defied an Iraqi government threat to attack his stronghold in a holy shrine and rejected demands that he end his uprising.

Iraq's main southern pipeline from the Basra oilfields has been shut since the last sabotage attack on Aug. 9, curbing export flows to about a million barrels daily, half the normal rates, through a secondary line.

An official at South Oil Co.'s headquarters in Basra said oil exports of 1 million barrels per day were still flowing through the southern terminals despite the attack on its offices.


Demand growth in emerging economies China and India has shaken up the oil market this year, intensifying competition for supply with established petroleum-consuming giants such as the United States.

"The market is currently slightly higher than it should be, but I do expect to see $50 a barrel on NYMEX crude oil by the fourth quarter," said Benoit de Vitry, global head of commodities for Barclays Capital.

China's refineries have processed 17.2 percent more crude so far this year than in 2003, the country's State Statistical Bureau said on Thursday. Crude imports to the end of July have soared nearly 40 percent from last year.

India's biggest refiner, state-run Indian Oil Corp. Ltd., or IOC, said it expected India's crude oil imports to rise by 11 percent in 2004/05 as demand rises by nearly 4 percent.

"Refineries are running flat out," IOC Chairman M.S. Ramachandran said.


In the United States, which guzzles around a quarter of the world's oil, demand so far this year is up 3.4 percent, stopping a buildup in inventories much as rising consumption absorbs extra imports from OPEC producers, such as Saudi Arabia.

U.S. government data on Wednesday showed commercial crude oil supplies had fallen 1.3 million barrels to 293 million barrels last week, the third straight week of declines.

Nerves were little calmed by OPEC assurances on Wednesday that it had raised output in July to a level that should permit a substantial buildup in world oil stocks in the fourth quarter.

The Organization of Petroleum Exporting Countries is pumping oil at its highest level since 1979. A report from OPEC headquarters estimated it could raise production to 30.5 million barrels per day (bpd) next month.

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