Oil Gains a Third Day on U.S.-Russia Tensions, Gasoline Supply

By Christian Schmollinger

Aug. 21 (Bloomberg) -- Crude oil rose for a third day in New York on concerns that Russian and Caspian Sea supplies may be disrupted after the U.S. agreed yesterday to construct a missile- defense system in Poland.

The missile shield has ``real anti-Russian potential'' and will ``spur an arms race'' in Europe, Russia's Foreign Ministry said in a statement. Russia's invasion of Georgia has disrupted the export of 1.1 million barrels of crude from the Caspian Sea. U.S. gasoline supplies fell 6.2 million barrels last week, more than double analysts' predictions.

``Right now it's really a reaction to the Russians' strong reaction to this missile-shield agreement,'' said Victor Shum, a senior principal at consultants Purvin & Gertz Inc. in Singapore. ``The concern is for a supply disruption from the world's second- largest oil producer, Russia.''

Crude oil for October delivery rose as much as $1.14, or 1 percent, to $116.70 a barrel on the New York Mercantile Exchange and was trading at $116.34 at 12:43 p.m. in Singapore. Futures are down 21 percent from a record $147.27 on July 11. Prices are up 68 percent from a year ago.

The September contract expired yesterday after increasing 45 cents, or 0.4 percent, to settle at $114.98 a barrel.

Georgian Black Sea ports are running out of crude and oil- products to export as Russian troops block railways, a shipping agent in Batumi said yesterday. BP Plc's Baku-Tbilisi-Ceyhan pipeline and the Baku-Supsa system that run through the country remain closed. They are capable of carrying a combined 1.1 million barrels a day.

``There is a real supply disruption there and likely more of the Caspian crude will stay bottled up with nowhere to go in the medium term,'' Purvin & Gertz's Shum said.

Gasoline Demand

Brent crude oil for October settlement rose as much as 89 cents, or 0.8 percent, to $115.25 a barrel on London's ICE Futures Europe exchange. It was at $115.16 a barrel at 12:36 p.m. Singapore time. It rose $1.11, or 1 percent, to $114.36 a barrel yesterday.

Analysts had predicted a 3 million-barrel decline in gasoline stocks in the U.S., according to a Bloomberg survey. Motor fuel demand was down 1.6 percent from last year's levels. Oil stockpiles rose 9.39 million barrels to 305.9 million barrels, the biggest gain since March 2001.

``Consumption remains soft in the U.S. so the drawdown in stocks reflects as much refiners adjusting inventories to meet that environment as anything else,'' said David Moore, a commodity strategist at Commonwealth Bank of Australia Ltd. in Sydney. ``In that environment it's the case that there isn't an incentive to build large gasoline inventories.''

Summer Driving Season

Gasoline demand in the U.S. peaks during the summer, when Americans take to the highways for vacations. The so-called driving season lasts from the Memorial Day weekend in late May to Labor Day in early September.

U.S. fuel demand averaged 20.2 million barrels a day during the past four weeks, down 3 percent from a year earlier, the department said. Gasoline consumption averaged 9.46 million barrels a day over the period, down 1.6 percent.

Refineries operated at 85.7 percent of capacity in the week ended Aug. 15, down 0.2 percentage point from the week before and the lowest since the week ended May 2, the report showed.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.