Oil Falls for Third Day as Dollar Reduces Appeal of Commodities

By Alexander Kwiatkowski

Aug. 12 (Bloomberg) -- Oil fell for a third day as the dollar traded near a 5 1/2-month high against the euro, limiting the appeal of commodities, and Russia called off military action in Georgia, easing concerns about regional supply disruptions.

The dollar also approached a seven-month high against the yen on speculation the economic slowdown that started in the U.S. is spreading. A stronger U.S. currency makes dollar- denominated commodities more expensive for buyers in other currencies. Russian President Dmitry Medvedev ordered a halt to Russia's offensive in Georgia.

``The stronger dollar is playing the major part of the downward movement,'' said Andy Sommer, an analyst with HSH Nordbank in Hamburg. ``We are below $1.50 versus the euro and that is building pressure on oil prices.''

Crude oil for September delivery fell as much as $1.97, or 1.7 percent, to $112.48 a barrel, in after-hours electronic trading on the New York Mercantile Exchange. It was at $113.00 a barrel at 10:05 a.m. London time.

Yesterday, futures fell 75 cents, or 0.7 percent, to settle at $114.45 a barrel, the lowest close since May 1. Oil has declined 23 percent from the record $147.27 reached on July 11.

The dollar traded at $1.4917 per euro as of 10:24 a.m. in London, from $1.4909 yesterday, after rising to $1.4816 earlier, the highest since Feb. 26.

`Safety Secured'

Russia is ending military action in Georgia because it has secured the safety of its peacekeepers and citizens in the disputed Georgian regions of South Ossetia and Abkhazia, Medvedev said in comments released through the Kremlin's press service. Georgia is a key link in a U.S.-backed southern energy corridor that connects the Caspian Sea region with world markets, bypassing Russia.

A fire on the Turkish stretch of the Baku-Tbilisi-Ceyhan pipeline last week halted exports of Azeri Light crude from Azerbaijan via Turkey, forcing the operator BP Plc to divert the oil by alternative routes through Georgia. Five days of clashes between Russia and Georgia had raised concerns that these alternative routes could be disrupted.

Russian warplanes attacked a section of BP Plc's Baku- Tbilisi-Ceyhan pipeline in Georgia today, said Kakha Lomaia, head of Georgia's National Security Council. The damage on the pipeline near the town of Rustavi is unknown, he said by telephone from Tbilisi. It was the second attack on the link during the conflict with Russia, he said.

China Demand

The U.S. economy will grow at an average 0.7 percent annual pace from July through December, half the gain in the first half of the year, a Bloomberg News survey showed. China, the second- largest oil consumer, said yesterday imports fell in July.

``The market focus has shifted to the weakness in demand, and also the firmer U.S. dollar is playing a part as well,'' said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. ``The Chinese economy isn't growing as strong as last year.''

China's July crude-oil imports fell 7 percent from a year earlier after global prices increased to a record, discouraging refiners from purchasing raw material to process into fuels.

The country's 15 biggest oil refineries increased their operating rates to boost fuel supplies for the Beijing Summer Olympic Games that started on Aug. 8.

Brent crude oil for September settlement fell as much as $2.20, or 2 percent, to $110.47 a barrel on London's ICE Futures Europe exchange. It was at $111.24 a barrel at 10:24 a.m. local time. It declined 66 cents, or 0.6 percent, to settle at $112.67 a barrel yesterday, the lowest close since May 1.

To contact the reporter on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.netChristian Schmollinger in Singapore at christian.s@bloomberg.net.