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Threats in Iraq Increase Oil Prices

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From Reuters and Bloomberg News

Oil prices closed higher Wednesday after new bombing threats by an anti-U.S. militia in Iraq raised the specter of more export disruptions and countered a fresh assurance from Saudi Arabia of its ability to cope with rising world demand.

An unexpectedly large drop in weekly U.S. crude inventories also helped to underpin prices.

Separately, the International Energy Agency, the oil advisor to 26 industrialized nations, raised its projections for global oil demand this year and next.

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Near-term crude futures in New York rose 28 cents to $44.80 a barrel, just below the record close of $44.84 set Monday.

Saudi Arabia sought to cool prices by confirming it had raised output sharply in the last three months and saying it could tap spare capacity to meet any extra demand.

“Saudi Arabia, in collaboration with the other OPEC countries, endeavors to ensure the stability of the international oil market and prevent prices from escalating in a way that may negatively affect the world economy or oil demand,” Saudi Oil Minister Ali al-Naimi said in a statement.

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“Saudi Arabia is trying to jawbone prices down, but the market has got too many things to worry about, like the Mehdi army in Iraq,” said analyst Gary Ross of PIRA Energy.

A senior member of the Mehdi army, a Shiite militia, said his group would bomb Iraq’s oil pipelines if U.S. Marines carried out a planned attack on militia in the city of Najaf.

Iraqi officials said southern oilfield exports were set to return to full flow after a sabotage attack Monday on the country’s main export pipeline.

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In Russia, that nation’s Federal Energy Agency said Wednesday that it would ask court bailiffs to unblock frozen financial accounts of Yukos. Fear that the company, Russia’s largest oil firm, could be headed for bankruptcy has been another factor fueling worries about a possible global shortfall of oil.

The effort by the Russian agency on behalf of Yukos marked the first public sign of dispute within the government over the handling of the company’s problems. Other Russian government officials have been seeking to force the company’s failure, analysts say.

Also on Wednesday, Yukos’ owners declared it in default on a $1.6-billion loan.

For now, many analysts insist that global oil supplies are adequate. U.S. inventories took a surprising drop of 4.3 million barrels last week, government data show. But total stocks of 294 million barrels are 10 million higher than a year earlier.

The International Energy Agency, in its monthly oil market report, said world oil demand this year would average 82.2 million barrels a day, 700,000 more than a July estimate, after changes to historical data.

In 2005, use will average 84 million barrels a day, also 700,000 more than previously forecast.

The agency said it had underestimated oil use for years and was recognizing that demand in revised data. The change comes from higher-than-estimated use in nations such as China.

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Despite the estimates, the agency tried to reassure oil markets, saying it expected Russia to ensure oil flows and that it wasn’t calling for more oil production.

But “every report that comes out paints a tighter and tighter picture of the market,” said Kevin Norrish, an analyst at Barclays Capital in London.

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