Crude Oil Climbs in New York on Supply Threat in Caspian Sea

By Grant Smith and Nesa Subrahmaniyan

Aug. 11 (Bloomberg) -- Oil prices climbed from a 14-week low in New York on concern the Russia-Georgia conflict may disrupt crude supplies from the Caspian Sea.

Crude rebounded after five days of clashes in Georgia that threatened alternative export routes from Azerbaijan, needed because of a pipeline fire. The fire on the Turkish stretch of the Baku-Tbilisi-Ceyhan pipeline was extinguished today following an explosion last week. Prices also gained as some traders deemed last week's 7.9 percent drop as excessive.

``The events in Georgia over the weekend place more concerns in traders' minds over the continuity of supply of crude oil,'' said Rob Laughlin, senior broker at MF Global Ltd. in London. ``The Baku-Ceyhan outages are placing additional strains on a creaking supply chain.''

Crude oil for September delivery gained as much as $1.70, or 1.5 percent, to $116.90 a barrel in electronic trading on the New York Mercantile Exchange, and traded at $116.18 as of 12:33 p.m. in London. Oil settled at $115.20 on Aug. 8, the lowest close since May 1.

Nymex crude futures have fallen 21 percent from the record $147.27 a barrel reached on July 11.

Brent crude for September settlement added as much as $1.99, or 1.8 percent, to $115.32 on the ICE Futures Europe exchange, and last traded at $114.35. Nymex crude traded at a premium of $1.97 a barrel to Brent crude oil, compared with 59 cents a month ago.

`Physical Disruption'

``Whether we get an actual physical disruption in supply to Europe will be critical,'' said Gerard Burg, an energy and minerals economist at National Australia Bank Ltd. in Melbourne. ``If it impacts on Brent, it is going to affect a much wider market and has the potential to send prices higher.''

Georgia is a key link in a U.S.-backed southern energy corridor that connects the Caspian Sea region with world markets, bypassing Russia. The Baku-Tbilisi-Ceyhan pipeline ships Azeri Light crude, which is typically priced based on the Brent contract.

Russian troops entered the breakaway province of South Ossetia on Aug. 8 after fighting between local forces and the Georgian army. Georgia, which has withdrawn its forces, is now under attack from warplanes and artillery fire from neighboring Abkhazia province.

Maintenance Season

``Brent hasn't really narrowed to Nymex futures so it hasn't really affected supplies too much, but if there's a real prolonged disruption, then Brent may get a kick up,'' said Tetsu Emori, a fund manager at Astmax Co. in Tokyo. ``The European refinery maintenance season is also about to start so demand for crude may also drop.''

The fire on BP Plc's Baku-Tbilisi-Ceyhan oil pipeline in eastern Turkey was extinguished today, enabling officials to assess damage to the link within 12 hours, a spokesman for the Baku-Tbilisi-Ceyhan line said.

``The fire's out and now we're in the cool-down period, which usually takes some time,'' Murat Lecompte, external affairs director for pipeline operator BTC Co., said in a telephone interview.

BP and other companies are pumping crude through the Baku- Supsa pipeline to the Georgian Black Sea coast, after the fire. The pipeline had been delivering about 800,000 barrels of oil a day to the Turkish port of Ceyhan before the shutdown, BP said last week.

The amount represents about 6 percent of the 12.8 million barrels a day produced by the countries of the former Soviet Union, according to data from the BP Statistical Review of Energy.

Oil also rose after falling below the $116.69 a barrel support level this year that marked a 50 percent retracement of the climb to July's record, based on a series of numbers known as the Fibonacci sequence.

``It's a technical bounce up today but doubts remain if it can be sustained,'' said Toby Hassall, analyst at Commodity Warrants Australia in Sydney.

To contact the reporter on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net