Crude Oil Is Steady After Rising on Turkish Pipeline Disruption

By Margot Habiby and Samantha Zee

Aug. 8 (Bloomberg) -- Crude oil was little changed after rising for the first time in four days yesterday as Turkey said a pipeline carrying crude 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.

``This is a global market, so it does have an impact'' around the world, said Peter Beutel, president of Connecticut- based Cameron Hanover Inc. ``This is a pipeline that hasn't been attacked before. To have it now politicized by the Kurds opens up a whole new realm of political frustration and supply loss.''

Crude oil for September delivery fell 23 cents, or 0.2 percent, to $119.79 a barrel at 9:07 a.m. Sydney time on the New York Mercantile Exchange.

Yesterday, oil rose $1.44, or 1.2 percent, to settle at $120.02 a barrel in New York. Futures dropped as low as $117.11 a barrel earlier 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.

``That there's no significant follow-through selling after going through some stops yesterday shows there's strength in the market,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. That's adding support along with concern about the Turkish pipeline, he said.

Pipeline operator BP Plc canceled export obligations.

Still Burning

``The fire is still continuing,'' Murat Lecompte, a spokesman for BP in Turkey, said by phone from Istanbul at around 7 p.m. local time. ``Until the fire is out, there is no way we can tell what the damage is, what caused it.''

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.

``Flows from the Caspian play an important role in non-OPEC supply growth this year, given an increasingly deteriorating growth outlook for Russia,'' said Harry Tchilinguirian, senior oil analyst at BNP Paribas SA in London. ``The region is one of the fastest areas of crude supply growth.''

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.

Ex-Soviet States

Azerbaijan plans to pump 1.2 million barrels a day next year, President Ilham Aliyev said in June.

Output in Russia, the largest producer outside OPEC, fell to 9.78 million barrels a day last month, down 1.1 percent from last year, the government said. Drillers in the country face aging fields and rising costs.

Oil may trade near $115 a barrel in the coming months as demand slows and supply increases, according to Thomas O'Malley, chairman of Petroplus Holdings AG, Europe's biggest independent refiner by capacity.

Brent crude for September settlement rose 86 cents, or 0.7 percent, to settle at $117.86 a barrel on London's ICE Futures Europe exchange yesterday. Earlier, it touched $119.75 a barrel.

Hurricanes Forecast

U.S. forecasters said yesterday that as many as six major hurricanes may form in the Atlantic basin in the season that runs from June 1 to Nov. 30. They previously forecast two to five. Meteorologists with the National Oceanic and Atmospheric Administration's Climate Prediction Center also raised their forecasts for the total number of storms.

Hurricanes Katrina and Rita, both Category 5 storms of the highest intensity, devastated New Orleans and the Gulf Coast's oil output and refineries in 2005, churning oil and gas markets.

Crude-oil supplies rose 1.61 million barrels last week, and fuel consumption was 2.6 percent lower in the four weeks ended Aug. 1 from a year earlier, the U.S. Energy Department said. Gasoline supplies fell 4.34 million barrels, or 2 percent, to 209.2 million barrels, the biggest drop since April.

Gasoline for September delivery rose 5.34 cents, or 1.8 percent, to $3.0027 a gallon. Futures fell 13 percent last month, the biggest drop since September 2006, as a slowing economy cut demand for the motor fuel.

Regular gasoline at the pump, averaged nationwide, fell 1.3 cents to $3.849 a gallon, AAA, the nation's largest motorist organization, said yesterday on its Web site. Pump prices reached a record $4.114 a gallon on July 17.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net; Samantha Zee in Los Angeles at szee@bloomberg.net.