Oil Below $107 After Overnight Jump

Oil prices fell Friday after jumping more than $1 a barrel in the previous session as the bombing of a key Iraqi oil pipeline heightened supply concerns.

Thursday's bombing appeared to cut oil exports from the southern oil city of Basra, despite oil officials' statements to the contrary.

Exports from southern Iraqi terminals have been reduced to about 1.2 million barrels a day from a normal rate of 1.56 million barrels a day, Dow Jones Newswires reported. Analysts said the full impact of the attack on Iraq's oil exports was not yet known.

"There has been limited reporting on the extent and severity of the damage ... it's still a little bit unclear exactly how much damage was done," said David Moore, a commodity strategist at the Commonwealth Bank of Australia in Sydney.

Light, sweet crude for May delivery lost $1.08 cents to $106.50 a barrel in Asian electronic trading on the New York Mercantile Exchange by midmorning Friday in Singapore.

The contract rose $1.68 to settle at $107.58 a barrel on Thursday.

The attack was the second bombing of a pipeline in a week in Basra, where Iraqi security forces have been clashing with Shiite militia fighters. Experts said the ongoing violence, while escalating rapidly, was not expected to result in huge disruptions to Iraqi oil exports.

"The government's and the U.S. forces' ability to keep insurgents from penetrating the actual oil fields and damaging production facilities has not been rocked, although the current level of violence appears to be the highest ever since the 2003 U.S.-led invasion," wrote Samuel Ciszuk of consulting firm Global Insight in a research note.

However, Ciszuk added, "temporary shut-ins of 100,000-200,000 (barrels a day) should not be ruled out in the coming week."

The news from Iraq added to supply concerns stoked Wednesday when a U.S. government agency reported that domestic crude oil inventories were mostly unchanged last week, while fuel supplies fell more than expected.

The supply issues temporarily drew attention from the dollar, which rose slightly against the euro Thursday, reversing a trend that sent oil futures surging nearly $5 the day before.

A stronger dollar makes hard assets such as energy commodities less attractive than when the greenback is falling. Oil futures are priced in dollars, making them more expensive to investors overseas when the U.S. currency rises.

Also, a strengthening dollar lessens the need to use crude oil and other hard commodities as hedges against inflation.

Analysts, though, expect the dollar to resume its decline against foreign currencies because the Federal Reserve is expected to cut interest rates several more times this year.

In other Nymex trading, heating oil futures dropped 1.93 cents to $3.129 a gallon while gasoline futures fell 0.01 cent to $2.705 a gallon. Natural gas futures were flat at $9.687 per 1,000 cubic feet.