Basra Pipeline Explodes, May Disrupt Exports Until Late Next Week

Just one day after the Iraqi Oil Ministry stepped forward to say that production and exports in Iraq's southern fields had been unaffected by fighting in Basra, a key oil pipeline has been blown up, spiking oil prices March 27.

The Zubair-1 crude pipeline in Iraq, the major pipeline leading to two exporting terminals, exploded after a bomb detonated underneath the pipeline, according to local news reports.

PFC Energy released information to clients indicating that "around 800,000 bbl/d could be lost, with no respect of that figure being made up from a parallel line."

The economic impact of the explosion has already affected crude prices.

"The main current fundamental risk for oil is the extended fighting in Basra and this morning's report of a bomb attack on one of the export pipelines will bring a risk premium for the weekend," Petromatrix analyst Olivier Jakob told Thomson Financial.

On March 26, the price of crude for May delivery closed up $4.68 at $105.90/bbl. On March 27 when the news of the explosion hit NYMEX, crude rose to more than $107 in early morning trading.

An Iraqi official with the South Oil Company, headquartered in Basra, has stated that the military activity in that area has indeed hindered production and exports, reported Dow Jones. The same official said the bombing of the Zubair-1 will "heavily" affect exports.

Iraq's oil exports from the southern area of the country is currently down to 1.2 million bbl/d.

"Our firefighting teams were able to extinguish the fire on the Zubair-1 Basra terminal pipeline," a South Oil Company official told Dow Jones. "We need 72 hours to restart the pipeline if the security situation … can permit."

This same official said that another pipeline, one transporting oil from the Halfayia oil field, which is located north of Basra, to a refinery located in the city of Amara.

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