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When Oil Demand Falters, There Are Other Reasons For High Prices

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NEW YORK — Oil prices jumped back above $120 a barrel Thursday, halting a steep three-day slide after Kurdish rebels claimed responsibility for a fire at key Turkish pipeline that supplies Western countries.

Light, sweet crude for September delivery rose $1.44 to settle at $120.02 a barrel on the New York Mercantile Exchange, after prices alternated between positive and negative territory. Gasoline futures also rose, while heating oil and natural gas futures finished lower.

At the pump, retail gas prices tumbled further overnight. A gallon of regular fell on average just over a penny to $3.849, more than 6 percent off record-highs above $4 a gallon reached last month, according to auto club AAA, the Oil Price Information Service and Wright Express.

Crude had tumbled more than $6 over the previous three days, bringing prices $30 lower than its July high above $147 a barrel. But the contract rebounded after pro-Kurdish news agency Firat said the separatist group Kurdistan Workers' Party, known as PKK, admitted sabotaging the Turkish section of the critical Baku-Tbilisi-Ceyhan pipeline Tuesday night.

Turkey's state-run Anatolia news agency reported that the fire, which was said to be under control Thursday, could cause the pipeline to be shut down for up to 15 days, stoking supply worries among oil market traders.

In Turkey, pipeline shareholder BP PLC and other oil companies declared what's called a force majeure, freeing them of contractual obligations to deliver crude.

But BP spokesman Murat Lecompte told The Associated Press a terminal on the pipeline's southern tip had some crude stocks and that westbound shipments were continuing early Thursday. He added that he did not how long stocks would last or how long the pipeline would remain shut.

The fire raised the possibility of a prolonged closure of the U.S.-backed 1,100-mile pipeline, which allows the West to tap oil from Azerbaijan's Caspian Sea fields, estimated to hold the world's third-largest reserves, and bypass Russia and Iran. The pipeline can pump slightly more than 1 million barrels of crude oil per day, or more than 1 percent of the world's daily crude output.

"Every day that it's down, we lose about 1 million barrels of oil that otherwise would be available to the global market," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. But he doubted the shutdown would reverse oil's downward spiral of the past four weeks, saying falling demand for energy in the U.S. will likely keep weighing on prices.

"This advance isn't very inspiring. It looks like more of a near-term correction" after oil's recent drop, Ritterbusch said.

Before Thursday's rally, Nymex front-month crude futures had fallen around 20 percent, or about $30, since reaching a record high of $147.27 on July 11. The decline comes amid mounting evidence that high energy prices are forcing Americans to cut back on driving.

The U.S. Energy Department's Energy Information Administration said Wednesday that crude supplies rose 1.7 million barrels in the week ended Aug. 1, while inventories of distillate fuel, which include diesel and heating oil, jumped 2.8 million barrels.

Meanwhile, EIA data showed gasoline stockpiles fell 4.4 million barrels last week, much more than the 1.4 million drop analysts expected. Analysts said the drop likely signals that gas distributors have taken more deliveries from refiners as the summer driving season enters its last month _ not that motorists are suddenly driving more in response to recent pullbacks in pump prices.

The market was also eyeing more tension over Iran's nuclear program. The five permanent U.N. Security Council members and Germany agreed Wednesday to pursue new sanctions against Iran, which will probably take months to implement.

Tehran has refused to curb its uranium enrichment and may be trying to run out the clock on the Bush administration in hopes of getting a better offer from a new U.S. president next year, the State Department said.

Iran says it isn't seeking nuclear weapons and won't scale back what it calls a legitimate energy-production program.

In other Nymex trading, heating oil futures slipped 0.43 cent to finish at $3.2336 a gallon, while gasoline prices rose 5.34 cents to settle at $3.0027 a gallon. Natural gas futures fell 20.2 cents to close at $8.571 per 1,000 cubic feet.

In London, September Brent crude rose 86 cents to settle at $117.86 a barrel.

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Associated Press Writers C. Onur Ant in Istanbul, Turkey, George Jahn in Vienna, Austria and Alex Kennedy in Singapore contributed to this report.