Oil rises on report of Turkish troops in Iraq

Prices were also buoyed by a US government report showing the nation's refineries struggling to boost fuel production at the start of the peak demand summer vacation season, and disruptions in oil and gas exports from Oman after a cyclone in the Arabian Sea shut loading operations. London Brent crude settled up 57 cents to $71.02 a barrel. US crude settled up 35 cents to $65.96.

Turkish troops conducted a “limited operation” into northern Iraq in recent days in pursuit of Kurdish rebels, a military official was reported as saying on Wednesday. Yet the speculation was immediately turned down by Turkish officials who denied any incursion by Turkish army. US oil traders said they were concerned the incursion could escalate tension in the energy-rich region. “The Turkey thing popped us up,” said Phil Flynn, analyst at Alaron Trading in Chicago. “The concern is the Middle East could get out of hand.”

“Any kind of conflict in this region that can potentially upset oil supply is going to boost prices a little bit,” said Tobin Gorey, commodity strategist with the Common-wealth Bank of Australia in Sydney. “It probably won’t turn into something huge, but you can’t run the risk that it does.”

The news came after the US Energy Information Administration reported oil refineries were running at the lowest rate for this time of the year in 15 years amid a series of operational breakdowns. Strong imports of gasoline, however, led to an increase in commercial stockpiles of 3.5 million barrels -- well above an anticipated 1.4-million-barrel increase, but refineries were running at just shy of 90 percent capacity.

Investors were earlier focused on Cyclone Gonu, the strongest storm to reach Oman in 30 years, which disrupted the country’s crude exports of 650,000 barrels per day (bpd) for a second straight day. It weakened on Wednesday to the equivalent of a Category One hurricane from a maximum-force Category Five, en route to the Strait of Hormuz, a major Gulf oil export route, and towards southeastern Iran.

An Iranian oil official said crude shipments of 2.4 million bpd from OPEC’s second biggest producer were not expected to be affected. “We doubt the few days of export delays caused by the storm will, in the end, contribute much to the upside or create measurable disruptions to the system,” said Edward Meir of Man Financial Energy Group.

Disruptions to Nigerian oil output and Iran’s nuclear dispute with the West remain underlying issues affecting prices. Some 722,000 bpd of Nigerian production, or about 26 percent of the country’s capacity, remained shut in due to militant attacks and sabotage.