Crude Oil Falls on Stronger Dollar, Caspian Pipeline Restart

By Mark Shenk

Aug. 22 (Bloomberg) -- Crude oil fell for the first time in four days as the U.S. dollar strengthened and Turkey restored flows through a Caspian Sea pipeline.

Energy futures fell as the rising dollar eased demand for commodities as an inflation hedge. The Baku-Tbilisi-Ceyhan pipeline, which moves oil from Azerbaijan through Georgia to Turkey's Mediterranean coast, resumed normal flows today after a fire shut it earlier this month, a Turkish official said.

``The direction of oil is dependent on what the dollar does right now,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. ``Oil prices were moving higher overnight but changed direction as the dollar rebounded.''

Crude oil for October delivery fell $2.18, or 1.8 percent, to $119.00 a barrel at 10:08 a.m. on the New York Mercantile Exchange. Prices are up 72 percent from a year ago.

Oil, up 4.5 percent this week, is poised for its biggest weekly gain since early June. Futures are down 19 percent from a record $147.27 reached on July 11.

The dollar rose against the euro as traders judged the U.S. currency's first weekly loss since mid-July to be overdone and as a decline in European industrial orders added to signs of a deepening economic slowdown. Dollar-based commodities such as oil and gold are often viewed by investors as a store of value when the currency weakens.

The dollar climbed 0.6 percent to $1.4812 per euro at 9:44 a.m. in New York, from $1.4899 yesterday, when it fell 1 percent, the biggest decline since June.

Caspian Supplies

BP Plc, Europe's second-largest oil company, StatoilHydro ASA and partners cut output at Caspian oil fields following the closure of the 1,768-kilometer (1,100-mile) link on Aug. 5. The pipeline is used to carry oil from Azerbaijan through Georgia to Turkey, where it's loaded onto tankers for U.S. and European markets. BP said loadings are scheduled to begin next week.

``The pipeline's flow has returned to normal levels,'' Akif Sam, a spokesman for the Turkish Energy Ministry, said in a telephone interview.

A Ceyhan loading schedule yesterday showed 24 cargoes totaling 18.2 million barrels, or an average of 868,155 barrels a day, will be exported from Aug. 25 to Sept. 14.

``The volume of oil will be ramped up over the weekend, and if everything is set, loadings will begin on Monday,'' said Murat Lecompte, a spokesman for BP in Istanbul. He said some of the oil would be used to replenish supply depots.

Russian Invasion

The shutdown of the BTC pipeline was followed three days later by Russia's invasion of Georgia, which further disrupted Caspian fuel shipments.

Russian units sent into Georgia will withdraw today beyond a buffer zone south of the breakaway Georgian region of South Ossetia, Anatoly Nogovitsyn, deputy chief of Russia's General Staff, told reporters in Moscow. That means some troops will remain in Georgia proper.

Brent crude oil for October settlement declined $2.28, or 1.9 percent, to $117.888 a barrel on London's ICE Futures Europe exchange.

The Organization of Petroleum Exporting Countries will probably increase oil supply in August by 400,000 barrels a day, or 1.2 percent, as Iran releases crude oil held in storage, according to preliminary estimates from PetroLogistics Ltd. OPEC will next meet to review production targets on Sept. 9 in Vienna.

Gasoline for September delivery fell 7.54 cents, or 2.5 percent, to $2.9698 a gallon in New York.

Pump prices haven't increased since July 19, according to AAA, the nation's largest motorist organization. Regular gasoline, averaged nationwide, fell 1 cent to $3.692 a gallon, AAA said today on its Web site. Prices reached a record $4.114 a gallon on July 17.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.