Crude Oil Heads for Weekly Decline on Slow Demand, Dollar Gains

By Nesa Subrahmaniyan

Aug. 8 (Bloomberg) -- Crude oil headed for its fourth decline in five weeks as demand fell and the dollar gained, reducing the appeal of commodities as an inflation hedge.

Fuel consumption in the U.S., the world's biggest energy consumer, dropped 2.6 percent in the four weeks to Aug. 1 from a year ago, according to Energy Department data. New York crude futures have fallen 19 percent from a record $147.27 a barrel on July 11 as an economic slowdown made motorists drive less. The dollar is set for its fourth weekly gain against the euro.

``This past week, the focus has been on demand and the market's waiting for clearer evidence on the outlook,'' said David Moore, a commodity strategist at Commonwealth Bank Australia in Sydney. ``There's evidence of falling demand in the U.S. but demand is still there in emerging markets such as China.''

Crude oil for September delivery fell as much as $1.09, or 0.9 percent, to $118.93 a barrel on the New York Mercantile Exchange, and traded at $119.12 at 3:36 p.m. Singapore time. Price have fallen 4.8 percent this week.

Yesterday, oil rose $1.44, or 1.2 percent, to settle at $120.02 a barrel in New York. Futures dropped to $117.11 a barrel this week after U.S. inventories unexpectedly increased. That's more than 20 percent below the record $147.27 on July 11, a threshold commonly seen as the start of a bear market.

Crude oil may fall next week amid weakening demand caused by a global economic slowdown. Thirteen of 35 analysts surveyed by Bloomberg News, or 37 percent, said prices will drop through Aug. 15. Last week 45 percent expected a decline.

Dollar Gains

The dollar headed for its biggest weekly gain against the yen in two months. The euro was on course for its fourth weekly decline, its worst losing streak since May 2007, after European Central Bank President Jean-Claude Trichet said risks to economic growth are ``materializing,'' reducing expectations policy makers will raise interest rates.

The euro fell to $1.5195, the lowest since March 5, before trading at $1.5234. It headed for a 2 percent decline this week.

Turkey said yesterday a pipeline carrying crude oil to the Mediterranean from Azerbaijan may remain shut for two weeks following an explosion on Aug. 5. The pipeline is able to ship 1 million barrels a day, Ali Gungor, governor of the Erzincan province, where the blast occurred, said yesterday. A Kurdish separatist group claimed responsibility for bombing the link.

``That news didn't immediately get a price response but perhaps a day after news that it was related to terrorism have helped to get a price reaction,'' Commonwealth Bank's Moore said.

Turkey Pipeline

The pipeline's operator, BP Plc, canceled export obligations.

The Kurdistan Workers' Party, or PKK, said it bombed the pipeline, Firat, the Kurdish news agency, said on its Web site yesterday. The PKK, which has been fighting for autonomy in largely Kurdish southeast Turkey for two decades, attacked a section of the pipeline in east Turkey late Aug. 5, it said.

``Nymex WTI found a strong initial bid yesterday morning'' after the shut-in of the Baku-Tbilisi-Ceyhan, or BTC, pipeline could last up to two weeks, Stephen Schork, an energy analyst and president of the Schork Report, said in his daily note. ``The strength this event supposedly created was rather insignificant'' as a price rally stalled, he said.

Output from Russia and the other former Soviet states averaged 12.8 million barrels a day in 2007, including 868,000 barrels a day from Azerbaijan, according to the BP Statistical Review of World Energy. The U.S. imported 68,000 barrels a day from Azerbaijan in May, the latest data from the Energy Department shows.

Hurricane Forecast

Brent crude for September settlement fell as much as 93 cents, or 0.8 percent, to $116.93 a barrel on London's ICE Futures Europe exchange, and traded at $117.01 at 3:37 p.m. Singapore time. Yesterday, it gained 86 cents, or 0.7 percent, to settle at $117.86 a barrel.

``Odd, the BTC headline gave a lift to the Nymex contract,'' the Schork report said. The Brent contract ``hardly budged,'' even as it's more prone to supply disruptions between the Caspian and Ceyhan.

The BTC pipeline ships Azeri Light crude, which is typically priced based on the Brent contract.

U.S. crude-oil supplies rose 1.61 million barrels, or 0.6 percent, last week, the U.S. Energy Department said on Aug. 6. Gasoline supplies fell 4.34 million barrels, or 2 percent, to 209.2 million barrels, the biggest drop since April.

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