Crude Oil Rises as Turkey Says Pipeline Repair May Take 2 Weeks

By Margot Habiby

Aug. 7 (Bloomberg) -- Crude oil rose for the first time in four days after 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 today. The fire is still burning in a ``controlled manner,'' Huseyin Sagir, a spokesman at Turkish pipeline company Botas International, said. A Kurdish separatist group claimed responsibility for bombing the pipeline.

``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 has not 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 rose $1.90, or 1.6 percent, to $120.48 a barrel at 9:25 a.m. on the New York Mercantile Exchange. Earlier, the contract touched $121.78 a barrel.

New York futures fell as low as $117.11 a barrel yesterday after an increase in U.S. inventories. 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.

Kurds

The Kurdistan Workers' Party, or PKK, said it bombed the pipeline, the Kurdish news agency Firat said on its Web site today. 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 on Aug. 5, the report 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.''

Azerbaijan and other ex-Soviet states are among producers outside the Organization of Petroleum Exporting Countries that supply about 57 percent of the world's oil, according to the International Energy Agency.

Ex-Soviet States

Azerbaijan plans to pump 1.2 million barrels a day next year, President Ilham Aliyev said in June. That's up from a daily rate of 868,000 last year.

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.

``High crude oil prices and extreme volatility are causing demand destruction, primarily in the U.S. If we get a period of stability around these numbers, demand destruction will be limited,'' he said.

Brent crude for September settlement rose $1.65, or 1.4 percent, to $118.65 a barrel on London's ICE Futures Europe exchange. Earlier, it touched $119.75 a barrel. Yesterday, the contract declined to $115.60 a barrel in intraday trading, 22 percent below its record of $147.50.

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 ago, the U.S. Energy Department said.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.