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Oil Near $49 as Iraq Violence Escalates

LONDON (Reuters) - Global oil prices raced to fresh highs on Friday carrying U.S. crude close to $49 a barrel, driven by escalating violence in Iraq and unabated demand growth from China and India.

U.S. light crude for September set a record $48.98 a barrel before easing to $48.63, down seven cents on the day. It jumped $1.43 on Thursday and has risen nearly $12 a barrel, more than 30 percent, since the end of June. London Brent hit a new record $44.50 a barrel, up 17 cents.

The push to new peaks came as U.S. warplanes pounded areas near a shrine in Najaf where Shi'ite militiamen remained holed up after their leader, rebel cleric Moqtada al-Sadr, defied an ultimatum from Iraq's interim government to disarm.

The fighting compounded fears of further attacks on Iraqi oil infrastructure by insurgents who set fire on Thursday to the headquarters of the state company that operates Iraq's southern oilfields, the South Oil Co. in Iraq's port city of Basra.

"Crude oil is on the run again as violence heats up in Iraq," said brokerage Refco. "A-Sadr and his supporters have indicated a willingness to directly target oil production and transport, thus potentially endangering what oil there is coming out of the southern port."

The main southern pipeline from the Basra oilfields has been shut since a sabotage raid on Aug. 9, curbing exports to about a million barrels daily, half the normal rates.

Rising oil demand has left no room among other producer countries to cope with outages in Iraq but there is little sign yet that high prices are slowing the demand for fuel that is fed by global economic growth.

International Monetary Fund Director Rodrigo Rato was quoted on Friday saying he still expected world growth this year of 4.6 percent. Oil demand growth this year is running at a 23-year high of 2.49 million bpd on the 83-million-bpd world market.

China's oil demand shows no evidence of easing despite government efforts to slow an economic boom. Chinese crude imports for July jumped 41 percent with imports for the year to end-July up 40 percent year-on-year, according to customs data.

India's top refiner, state-run Indian Oil Corp. Ltd., said it expected the country's crude oil imports to rise 11 percent in 2004/05 as demand rises nearly four percent. An oil ministry official said India's crude oil import bill was expected to rise 50 percent to $27 billion this fiscal year.

"Many Asian countries, most of whom are oil consumers, are starting to hurt," said David Thurtell commodity strategist with Commonwealth Bank of Australia.

He said while some countries such as France and Germany had said high oil values had not threatened economic growth and U.S. inflation remained in check, some impact was already being seen.

"We are already seeing things softening in the U.S.," Thurtell said. "I suspect the market will settle down a bit after this, especially with higher production expected in September from OPEC."

Output at U.S. Mid-Atlantic factories slowed in August as new orders sank, suggesting recent weakness in the economy is likely to persist into coming months. The Philadelphia Federal Reserve said on Thursday a gauge of orders for new goods slid to 19.2 from 35.3, raising concerns about future demand for industrial products.

OPEC President Purnomo Yusgiantoro said on Friday he was concerned with the continuing price rise, but said the cartel had not yet seen a cost-driven increase in inflation.

The Organization of the Petroleum Exporting Countries said this week it had raised July output to a level that should permit a substantial build-up in world oil stocks in the fourth quarter, but the assurances have so far had little effect.

The cartel 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 from 29.57 million in July.

© Reuters 2004. All Rights Reserved.

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