Oil Trades Near 14-Week Closing Low on Bets Dollar Will Rise

By Mark Shenk

Aug. 13 (Bloomberg) -- Crude oil traded near a 14-week closing low on speculation that the dollar will strengthen against the euro, weakening the appeal of commodities as an inflation hedge.

``The oil market is still catching up with the rise of the dollar over the last few days,'' said Peter Beutel, president of New Canaan, Connecticut-based Cameron Hanover Inc. ``A lot of people are looking for continued increases for the dollar.''

Most energy and metals futures dropped as the U.S. currency rose to a 5 1/2-month high versus the euro earlier yesterday. Russian President Dmitry Medvedev said he ordered a halt to a five-day offensive in Georgia, a country that connects the oil- rich Caspian Sea region with world markets.

Crude oil for September delivery rose 14 cents to $113.15 a barrel at 8:51 a.m. Sydney time on the New York Mercantile Exchange. Prices are up 58 percent from a year ago. Yesterday, futures lost $1.44, or 1.3 percent, to settle at $113.01 a barrel, the lowest close since May 1, after touching $112.31. Oil has slipped 23 percent from a record $147.27 on July 11.

The dollar traded at $1.4920 per euro at 6 a.m. in Tokyo, after touching $1.4816 yesterday, the strongest since Feb. 26. The dollar was at 109.26 yen, after declining 0.7 percent yesterday. It touched the seven-month high of 110.40 on Aug. 11.

The Standard & Poor's GSCI index of 24 commodities fell as much as 1.4 percent to a four-month low, as metals including lead, zinc and copper slumped. Gold declined for an eighth straight session, the longest slide since 2001. The GSCI index has fallen 22 percent from a record 893.859 on July 3, descending into bear-market terrain.

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 ship the oil by alternate routes.

No Damage

BP yesterday said it isn't aware of any damage from bombing to the Baku-Tbilisi-Ceyhan link. Russian warplanes attacked a section of the pipeline yesterday, Kakha Lomaia, head of Georgia's National Security Council, said earlier.

``The troubles in Georgia could potentially cut up to 1 million barrels a day, but hasn't sent prices higher,'' Beutel said. ``This is further evidence that the market isn't trading on the fundamentals anymore. Last month investors were sending prices higher without a fundamental reason and this month we are seeing the reverse.''

Brent crude oil for September settlement dropped $1.52, or 1.4 percent, to settle at $111.15 a barrel on London's ICE Futures Europe exchange yesterday, the lowest settlement price since May 1.

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