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Iraq violence sends oil prices soaring

The price of crude oil has jumped to a three-month high as concerns mount that the violence in Iraq could hit crude supplies from one of the world's leading oil exporters.

The price of brent crude oil jumped more than $2 on Thursday to over $112 per barrel as escalating violence in Iraq threatened to disrupt supplies.

London's brent crude rose $2.24 to $112.19 by 10:13 a.m. GMT, marking a three-month high. At the same time benchmark US oil gained $1.83 to $106.23 a barrel.

The spike reflected nervousness among investors after militants from an al-Qaeda splinter group overran Mosul, the second largest city in Iraq, and seemed to be making advances towards the capital Baghdad.

Mosul is located in a region that serves as a major gateway for Iraqi oil. While the government's loss of control over the city had no immediate effect on crude exports, it could disrupt the major OPEC exporter's plans to expand oil production.

Iraq is the second largest crude producer in the OPEC cartel after Saudi Arabia and boasts the fifth largest proven crude reserves in the world.

According to the Iraqi government, the country pumps an average 3.5 million barrels a day.

OPEC's decision

earlier this week to keep output unchanged - at 30 million barrels a day - also contributed to the rise in price as markets interpreted the move as the cartel's inability to expand production despite increasing demand around the world.

The World Bank estimates the global economy will expand by 2.8 percent this year, faster than last year's 2.4 percent.

In the US, the world's top consumer of oil, stockpiles of crude dropped by 2.6 million barrels over the previous week. Experts had predicted a fall of only 1.2 million barrels, but the bigger-than-expected dip underlined robust demand.

sri/cjc (AP, AFP, Reuters)

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