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Oil Finishes Above $65 As Traders Eye Tighter Oil Inventories

Oil rallied above $65 a barrel as fresh refinery and pipeline problems in the U.S. reignited fears over gasoline supplies as the summer peak in gasoline demand in the world's largest consumer approaches.

U.S. crude settled up $1.07 or 1.7% at $65.08 while London Brent gained $1.03 to settle at $69.07.

Oil prices had been steady in the $64 range but moved higher after the operator of the largest refined products pipeline in the United States postponed a planned restart of a damaged 1.3 million barrel-per-day gasoline pipeline.

Colonial Pipeline shut the line between Houston, Texas, and Atlanta, Georgia, on Tuesday after discovering a suspected leak. Oil major Chevron also announced it was shutting down part of a California refinery for several weeks of planned maintenance. News that BP had again delayed the restart of some fire-damaged units at a major oil refinery in the Chicago area spurred further buying.

A source familiar with the BP refinery told Reuters on Friday that the company had informed Canadian oil producers that it would not be buying crude as anticipated since repairs to a damaged crude unit at the giant Whiting, Indiana refinery were now expected to last into September.

RBOB gasoline futures jumped 4.14 cents or 1.9% to settle at $2.2446 and heating oil futures rallied 3.97 cents or 2.1% to settle at $1.9228.

"The pipeline and refinery news today was definitely supportive. We can't afford to lose a drop of fuel," said Phil Flynn at Alaron Trading.

"Some of this is also follow through on yesterday's report from the Department of Energy. Crude supplies fell and refinery runs are still below normal," he said.

Oil prices have been supported by tight gasoline supplies in the United States since this spring. U.S. gasoline stocks have risen for four weeks in a row despite continued strong demand as imports have surged, but stockpiles remain below normal levels for this time of year.

Nigerian Unrest

Worries over supplies from Nigeria eased somewhat after community elders expelled protesters occupying a major oil export pipeline hub in Nigeria, allowing crude oil to flow, a traditional chief told Reuters.

Royal Dutch Shell had been forced to reduce output by 150,000 barrels a day because of the protest, which began on Tuesday.

Some 922,000 bpd, a third of Nigeria's total output, is shut-in, mainly due to militant attacks and sabotage.

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