Crude Rises After Russian Vote on Georgia's Breakaway Regions

By Ayesha Daya

Aug. 25 (Bloomberg) -- Crude oil rose above $115 a barrel after Russian lawmakers voted to recognize the independence of two breakaway Georgian regions, raising fears of new tensions in the area.

Both chambers of Russia's Parliament called on President Dmitry Medvedev to recognize the independence of South Ossetia and Abkhazia, the two regions that sparked Russia's first foreign incursion since the Soviet era.

``This may lead to new tensions between Russia and the West over Georgia, and may lead to more oil supply disruptions,'' said Carsten Fritsch, a Commerzbank AG analyst in Frankfurt. ``The market was hoping that supply was returning to normal but this new development, including an explosion on a Georgian train carrying oil over the weekend, is a reminder that things are not over.''

Crude oil for October delivery rose as much as $1.21, or 1 percent, to $115.80 a barrel on the New York Mercantile Exchange, and traded at $115.20 a barrel at 1:19 p.m. London time.

A fuel train exploded when it struck a mine about 7 kilometers (4.5 miles) from the city of Gori amid the continuing standoff with Russia, the Georgian government said Aug. 24.

A Georgian operation on Aug. 7 to retake South Ossetia led to a Russian invasion and the stationing of Russia soldiers in security zones disputed by Georgian leader Mikheil Saakashvili after a cease-fire accord.

Caspian Flows Resume

Futures fell 5.4 percent on Aug. 22 to $114.59, the biggest drop since Dec. 27, 2004, after the Baku-Tbilisi-Ceyhan pipeline, which transports oil from Azerbaijan through Georgia to Turkey's Mediterranean coast, resumed oil flows following a fire earlier this month that halted exports.

``The pipeline restart was a contributing factor, putting more supply in the market,'' said Jonathan Barratt, managing director of Commodity Broking Services in Sydney. ``Oil is trading in a very volatile, wide range. The volatility is telling me that a base is trying to form'' and prices won't sink much further, he said.

Oil flows from the Caspian began this weekend and loadings will start tomorrow, a spokesman for BP Plc, the main operator of the 1 million-barrel-a-day transport link, said today.

Azerbaijan sent oil to export via Iran because of the disruption, and Iranian Oil Terminals Co. received the first cargo for transit yesterday, according to the Iranian Oil Ministry's news agency, Shana.

Brent crude oil for October settlement rose as much as $1.41, or 1.2 percent, to $115.33 a barrel on London's ICE Futures Europe exchange. It was at $114.79 at 1:19 p.m. London time. The contract declined $6.24, or 5.2 percent, to $113.92 a barrel on Aug. 22.

To contact the reporter on this story: Ayesha Daya in Dubai adaya1@bloomberg.net