Oil Is Steady After Rising $5 on Dollar Drop, Russian Tensions

By Mark Shenk

Aug. 22 (Bloomberg) -- Crude oil was little changed after rising more than $5 yesterday as the dollar slumped and the Aug. 20 signing of a missile-shield agreement between the U.S. and Poland heightened concern Russia may disrupt the flow of oil.

Energy and metals futures climbed as the U.S. currency fell the most against the euro in more than a month. The missile shield has ``a real anti-Russian potential,'' the Foreign Ministry said in Russia, the second-biggest oil producer.

``The fall of the dollar is sending a huge investor flow into commodities,'' said Gene McGillian, an analyst at TFS Energy LLC in Stamford, Connecticut. ``The tensions between Russia and the West were supposed to be simmering down, but they are now ratcheting up because of Poland's agreement with the U.S.''

Crude oil for October delivery rose 9 cents, or 0.1 percent, to $121.27 a barrel at 8:17 a.m. Sydney time on the New York Mercantile Exchange. Futures are down 18 percent from a record $147.27 reached on July 11. Prices are up 75 percent from a year ago. Yesterday, futures surged $5.62, or 4.9 percent, to settle at $121.18 a barrel, the biggest increase since June 6.

Brent crude oil for October settlement rose $5.80, or 5.1 percent, to settle at $120.16 a barrel on London's ICE Futures Europe exchange.

``The dollar has been the big driver of both the rally and the pullback,'' said Kevin Kerr, president of Kerr Trading International in Wilton, Connecticut.

Dollar Slump

The dollar traded at $1.4904 per euro at 6:16 a.m. in Tokyo, after dropping 1 percent yesterday and touching $1.4903, the weakest level since Aug. 14 and the biggest drop since June. The dollar has risen 4.8 percent versus the euro in August, which would be the biggest monthly gain since May 2001.

``The dollar's rise was too swift to have faith in,'' said John Kilduff, senior vice president of risk management at MF Global Inc. in New York. ``The resumption of the currency's fall has increased the appeal of hard assets.''

The UBS Bloomberg Constant Maturity Commodity Index, which tracks 26 raw materials, gained 3.9 percent to 1508.967 yesterday, the highest since Aug. 1. Gold futures for December delivery rose $22.70, or 2.8 percent, to $839 an ounce on the Comex division of Nymex.

Russia has defied calls by U.S. President George W. Bush and other Western leaders for an immediate withdrawal from Georgia since a cease-fire agreement last week ended five days of fighting.

Baku-Supsa

The Baku-Supsa pipeline, which pumps more than 100,000 barrels of oil a day from Azerbaijan to the Georgian port of Supsa on the Black Sea coast, is still shut on security concerns following fighting between Georgian and Russian troops, Toby Odone, a London-based spokesman for BP, said yesterday by telephone. Railway transportation to Georgia's Black Sea ports has also been suspended because of a damaged bridge.

The Baku-Tbilisi-Ceyhan pipeline, which transports oil from Azerbaijan through Georgia to Turkey's Mediterranean coast, will be fully operational this week and tanker loading will resume next week, officials said. The pipeline has a capacity of 1 million barrels a day.

``I've been waiting for the gathering geopolitical worries to pump up the security premium,'' Kilduff said. ``The increase in tension with Russia will probably spell the end of cooperation on the Iran nuclear front.''

The U.S. and its European allies are trying to persuade Iran to halt its uranium enrichment program, saying it's a cover for developing nuclear weapons. Iran is the world's fourth- biggest oil producer.

Delayed Imports

U.S. gasoline supplies fell 6.2 million barrels last week, the U.S. Energy Department said in a report yesterday, more than double analysts' predictions. Crude-oil stockpiles rose 9.39 million barrels to 305.9 million barrels, the biggest gain since March 2001, the report showed. Stockpiles fell the previous week when Tropical Storm Edouard hit Texas.

Refineries operated at 85.7 percent of capacity in the week ended Aug. 15, the lowest since the week ended May 2, yesterday's report showed.

``The market shrugged off the big crude build because they attributed it to delayed imports that couldn't arrive during the week of Edouard,'' McGillian said. ``More attention was paid to the drop in gasoline stocks and refinery runs. If refiners continue to operate at this level we won't be able to build product inventories.''

Gasoline for September delivery rose 13.49 cents, or 4.6 percent, yesterday to settle at $3.0452 a gallon in New York, the biggest gain since.

Pump prices haven't increased since July 19, according to the AAA, the nation's largest motorist organization. Regular gasoline, averaged nationwide, fell 1.5 cents to $3.702 a gallon, the AAA said today on its Web site. Prices reached a record $4.114 a gallon on July 17.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.