Oil extends rally from 2014 high as Iraq pipe blast hits supply

NEW YORK (Bloomberg) - Oil extended gains in Asia from the highest close since 2014 after a key pipeline running from Iraq to Turkey was hit by an explosion, taking out crucial supply from an already tight market.

Futures in New York rose as much as 1.8 per cent in early trading towards US$87 a barrel. The fire has been brought under control but the cause of the blast remains unknown, according to pipeline operator Botas. The global oil market has tightened in recent weeks due to outages in Opec+ producers including Libya, with buyers in Asia paying sharply higher premiums for spot cargoes.

Crude's sizzling start to the year has prompted Goldman Sachs Group to boost its forecasts for global benchmark Brent, predicting US$100 oil in the third quarter. The Organisation of the Petroleum Exporting Countries (Opec) expects markets to remain "well supported" by robust demand, maintaining the confident outlook that has allowed the group to revive output.

Oil's rally poses a challenge for consuming nations and central banks as they try to stave off inflation while supporting global growth. The White House plans to continue to monitor prices and hold discussions with Opec+ countries as needed, a National Security Council spokesman said on Tuesday.

The pipeline hit by the blast is an important route bringing oil from northern Iraq to Europe through Turkey's Mediterranean port at Ceyhan, transporting more than 450,000 barrels a day last year. Botas said the conduit would reopen once the "necessary measures" had been taken.