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Mon 13 Sep 2010 12:17 PM

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Oil climbs to 1-month high on China growth, US pipeline

Chinese factories ramped up production by a larger than expected 13.9% in Aug.

Oil climbs to 1-month high on China growth, US pipeline
CHINA GROWTH: Chinese factories ramped up production by a larger-than-expected 13.9% in Aug.(Getty Images)

Oil rose to a one month high on Monday, spurred by an extended shutdown of a major Canada-US crude pipeline and strong Chinese demand growth and industrial output.

US crude for October climbed to $78.04 a barrel, the highest price since Aug 11, and was up $1.40 at $77.85 by 1411 GMT. Brent rose $1.12 to $79.28.

Enbridge's Line 6A pipeline carrying Canadian crude oil to US refineries and the crucial Cushing, Oklahoma oil hub, remained shut as workers continued digging around a leaky section of pipe in Romeoville, Illinois.

No date has been set for restarting the pipeline.

Eugen Weinberg, analyst, Commerzbank, said: "The leakage in this major pipeline will be supporting (US crude) prices, and Enbridge has not given any indication of the time estimate for how long it will take to repair it."

Data from the world's second largest oil user also boosted prices. Reflecting accelerating industrial activity, China's implied oil demand rose by 7.4 percent in August from a year earlier.

Ben Westmore, a commodities analyst at National Australia Bank, said: "The Chinese data was overwhelmingly positive."

He added: "China is in a soft landing after all the stimulus, and emerging economies are growing quite strongly. In terms of oil use, that portends strong demand in the coming months."

The suspension of shipments has the potential to reduce flows to Cushing by around 300,000 barrels per day, according to JP Morgan oil analysts, taking into account the potential to pump crude via alternative routes.

Six weeks ago, Enbridge was forced to shut another smaller part of its Lakehead system, which the US government has not yet allowed to resume operations following heightened scrutiny because of BP's Gulf of Mexico spill.

Brent posted a premium of more than $3.50 a barrel to US crude last week, its highest since mid May, but that had shrunk to around $1.40 on Monday.

Higher equity markets also helped oil prices. The oil market has spent much of the year in lockstep with equities and negatively correlated to the US dollar.

On Monday, world stocks measured by MSCI All Country World Index rose 1.35 percent.

US stocks opened higher after upbeat Chinese factory data and a deal on global bank rules that gives lenders more time before they must raise additional capital. The dollar was down 0.74 percent against a basket of currencies.

Hurricane Igor churned westward in the Atlantic Ocean as a dangerous Category Four storm and could strengthen even further, forecasters said.

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