March 28 (Bloomberg) -- Crude oil fell in New York, snapping a three-day gain, as concern that supply from Iraq would be disrupted eased after a pipeline fire was extinguished.

Iraqi oil flows through the country's southern pipeline system to the Basra export terminal returned to normal at about 10 p.m. local time yesterday, an oil official said. Iraqi Prime Minister Nuri al-Maliki pledged to maintain a crackdown on Shiite militias in the southern city of Basra that has sparked violence and protests across the country.

``Knowing that exports will continue as normal would bring some relief to people's minds,'' said Veronica Smart, an analyst at the Energy Information Centre in Newmarket, England. ``We might see further downside when the U.S. is trading later today.''

Crude oil for May delivery fell as much as $1.50, or 1.4 percent, to $106.08 a barrel, and traded at $106.66 at 12:49 p.m. London time in electronic trading on the New York Mercantile Exchange. Futures are up 67 percent from a year ago.

Oil extended its drop after the Commerce Department said U.S. consumer spending in February rose at its slowest pace in more a than a year, signaling that fuel use may slow in the world's largest economy.

Oil gained 1.6 percent yesterday after the blast on the Zubair-1 pipeline. The fire at the pipeline was put out before midday local time yesterday and the damage was being assessed, said the official in Baghdad, who declined to be identified because of security reasons.

Deutsche Forecast

Deutsche Bank AG, Germany's biggest lender, lifted its 2008 average estimate for Brent crude futures traded on London's ICE Futures Europe exchange to $95.50 a barrel from $85, and its 2009 prediction to $102.50 from $80.

``Worsening conditions in the financial markets, including the deterioration of the U.S. dollar'' combined with a ``flight into hard assets'' prompted the revision, Deutsche analysts including New York-based Adam Sieminski said in a report today.

Brent crude for May settlement traded at $104.30 a barrel, down 70 cents, at 12:37 p.m. in London. Earlier it fell as much as $1.05, or 1 percent, to $103.95 on London's ICE Futures Europe exchange. Brent crude futures reached a record $107.97 a barrel on March 17.

``We haven't received any news of supply disruption from Iraq and if it's disrupted we'll buy from elsewhere,'' said Lin Keh Yen, a spokesman for Formosa Petrochemical Corp., Taiwan's only publicly traded oil refiner, which has contracts to buy Basra crude oil. ``There's oil everywhere, the Middle East, West Africa'' and supply ``isn't a problem.''

Gasoline Stockpiles

Oil in New York is nonetheless heading for a weekly gain after U.S. gasoline stockpiles fell more than forecast and refiners cut production on lower processing profits.

The U.S. Energy Department said inventories dropped 3.29 million barrels to 229.2 million barrels last week. Stockpiles were expected to drop 1.5 million barrels, according to a Bloomberg News survey. U.S. refineries operated at 82.2 percent of their capacity, the lowest since October 2005, reducing fuel stockpiles.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net

Last Updated: March 28, 2008 08:52 EDT