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Oil prices rise slightly as market watches Mideast developments

3 min read

WASHINGTON (AP) – Oil prices rose above $74 a barrel Thursday as militant attacks and a pipeline leak stifled Nigerian production. Fighting in the Middle East also made traders fearful of possibly supply interruptions in the region, and a U.S. government report showed a surprising decline in natural gas inventories last week as hot weather pushed up demand for electricity.

Light sweet crude for September delivery rose 71 cents to $74.65 a barrel on the New York Mercantile Exchange.

September Brent on London’s ICE Futures exchange gained 40 cents to $74.40 a barrel.

In other Nymex trading, gasoline futures were flat at $2.30 a gallon, while heating oil futures rose 2 cents to $1.9845 a gallon.

Natural gas futures climbed 14 cents to $7.03 per 1,000 cubic feet after the Energy Department said U.S. inventories of natural gas shrank last week by 7 billion cubic feet. Supplies typically build during summer. The country’s natural gas inventory is well above historical levels at 2.76 trillion cubic feet. The five-year average for this time of year is 2.27 trillion cubic feet.

Shell Petroleum Development Co., a subsidiary of Royal Dutch Shell PLC, said a leak on the pipeline carrying 180,000 barrels per day had been a major factor in the declaration of force majeure – which excuses a party from performing its obligations under a contract.

Nigeria’s volatile Niger Delta region has been the scene of frequent disputes between oil companies and communities who have for years demanded a greater share of the wealth of Africa’s largest crude producer.

Italian oil and gas company Eni SpA said earlier this week that attackers raided an oil flow station in the southern delta, causing a significant drop in the amount of oil treated by the plant.

Traders have also been watching this week to see whether the violence in Israel and Lebanon would affect other countries in the oil-rich Middle East. The conflict has killed hundreds in Lebanon and dozens in Israel.

Israeli jets pounded Lebanon on Thursday, extending their air campaign a day after Israel suffered its highest one-day casualty toll – nine soldiers were killed – in fighting with Hezbollah. Al-Qaida also threatened new attacks in response to Israel’s assault on Lebanon, its first comment on the fighting now in its third week.

Oil prices hit a record $78.40 high on July 14, two days after fighting broke out between Israel and Hezbollah militants in Lebanon, on fears that the violence would escalate into a regional war and disrupt supplies, particularly from Iran, the Organization of Petroleum Exporting Countries’ No. 2 supplier and a backer of Hezbollah.

Adding to this are latest figures showing a robust U.S. oil market.

In its weekly petroleum report Wednesday, the U.S. Energy Department said summer gasoline demand in the U.S. was almost 2 percent higher than last year despite $3-a-gallon pump prices – high by American standards.

Gasoline inventories fell last week by 3.2 million barrels to 211 million barrels, just 500,000 barrels more than last year. Over the past four weeks, average U.S. gasoline demand was 9.6 million barrels a day, or 1.8 percent higher than last year.

The agency said crude oil inventories were flat last week at 335.5 million barrels, or 12.4 million barrels above last year.

AP-ES-07-27-06 1353EDT

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