Oil: Price jumps on Iraq violence and Saudi promise

NEW YORK - Oil prices rebounded on Tuesday as fresh violence rocked Iraq ahead of elections later this month and as Saudi Arabia, OPEC's top producer, said it is making good on a pledge to cut output.

US crude settled at US$43.91 a barrel, up US$1.79, or 4 per cent, on the New York Mercantile Exchange. Crude had started the year on Monday with a US$1.33 drop due to continued mild weather in the US Northeast, the world's biggest regional consumer of heating oil.

London's Brent crude rose 58 cents to US$41.07 a barrel. London's International Petroleum Exchange was closed on Monday for a holiday.

Gunmen killed Baghdad's Governor Ali al-Haidri on Tuesday in an escalating campaign to wreck the January 30 elections. It was Iraq's highest profile assassination in eight months. In addition, a suicide bomber rammed a fuel truck into a roadblock near Baghdad's Green Zone, home to US and British embassies, killing eight commandos and three civilians.

Oil fell on Monday on warmer than usual US weather. Private forecaster Meteorlogix predicted temperatures in the US Northeast to be above normal until Thursday and for near to above usual levels for the six-to-10-day basis.

A government report on Wednesday was expected to show US distillates inventories, which include heating oil and diesel, rose a modest 160,000 barrels last week, according to an expanded Reuters poll.

US heating oil futures shed 3 per cent, or 3.75 cents on Monday to settle below US$1.20 a gallon for the first time since Sept. 10. Heating oil on Tuesday was up 5.98 cents at US$1.252 a gallon.

"I don't think people want to take the risk of volatile prices at the moment. We'll probably stay in a US$40 to US$44 range," said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo.

US crude prices are down about US$12 from an all-time peak of US$55.67 a barrel in late October amid signs that higher fuel costs are beginning to weigh on global economic growth.

Organisation of the Petroleum Exporting Countries (OPEC) producers have pledged to cut 1 million barrels per day of excess production to stop inventories building too quickly.

Saudi Arabia has enforced its pledge to cut 500,000 bpd of supply and is now producing around 9 million bpd, Saudi Oil Minister Ali al-Naimi said on Tuesday.

"We took off the 500, we're around nine," Naimi told Reuters in an interview on arrival for a meeting with Asian oil consumers in New Delhi.

A succession of supply hitches has also supported prices.

Iraq's northern exports through Turkey have been stopped since December 18-19, following sabotage on the Kirkuk-Ceyhan pipeline, which can carry 500,000 bpd.

Oil officials said security forces had foiled an attack on Sunday on a refinery near the oil exporting city of Basra, where exports were running at about 1.6 million bpd.

There were several outages in North America and Europe. Canadian company Suncor Energy Inc. said on Tuesday a fire shut more than 100,000 bpd of production at its oil sands facility in Alberta.

About 145,000 bpd of crude output remains closed in the US Gulf of Mexico following September's Hurricane Ivan, and two oil fields with combined production of 205,000 bpd are still closed in the Norwegian North Sea after a gas leak in November.

In Nigeria, a company source for Royal Dutch/Shell said the company had ended a dispute with a Nigerian community and that 100,000 bpd of production that was halted during the row should resume flowing on Wednesday.

- REUTERS