OIL FELL more than $2 to below $113 a barrel yesterday as a drop in crude imports by the second largest consumer, China, outweighed concerns over supply disruptions stemming from the conflict between Georgia and Russia.
US crude traded down $2.30 to $112.90 a barrel by lunchtime in New York, extending losses that have dragged oil off a record high over $147 a barrel hit on July 11th.
London Brent crude fell $2 to $111.33. Crude oil did recover early in the session, reaching a high of $116.90, amid mounting geopolitical tensions following an escalation in violence over the weekend in the conflict between Russia and Georgia.
Moscow appeared determined to retain control of the oil-rich Caspian region and the two major pipelines which run through Georgia to Turkey, carrying oil and gas from the Azeri section of the Caspian Sea, analysts said.
Yesterday, Georgia's president said Russia wanted to establish control over these routes and accused Moscow of trying to replace the government in Tbilisi.
However, concerns were offset by events in China, where crude imports unexpectedly fell 7 per cent in July to a seven-month low, the steepest monthly drop since January 2005, as refiners balked at soaring crude costs amid lagging domestic fuel prices.
The drop in Chinese imports added to wider concerns about demand. Consumption in the US and other developed economies has fallen due to high fuel prices.
"I think that sentiment is changing on China, that it [demand] might not grow at the same rate that it has in the past couple of years, and the figures from this morning attest to that," said Lehman Brothers oil analyst James Crandell.
Rising demand from China and other developing economies sent oil on a six-year rally that drove prices up sevenfold to their peak in July. The dollar has been rallying against the euro since last week as investors have reassessed the impact of the US economic slowdown on the rest of the world.
Western powers appealed to Russia yesterday for an immediate ceasefire in the Caucasus after Moscow pushed troops further into Georgia and Tbilisi shelled the Russian-held region of South Ossetia.
Oil traders have pushed prices down despite the potential for the conflict to disrupt key transportation links for Caspian Sea oil producers, including Azerbaijan and Kazakhstan.
Georgia's oil ports of Supsa and Batumi, which export Azeri crude, have reduced shipments while the Georgian port of Poti has been shut. Kazakhstan also stopped shipments of its crude from Batumi.
The cutbacks come after a fire in eastern Turkey on the Baku-Tblisi-Ceyhan pipeline last week halted loadings of Azeri light crude shipped to the Turkish port of Ceyhan. The blaze was extinguished yesterday and repairs may take one to two weeks or longer, a source at the pipeline consortium said, forcing BP to cut output by at least 400,000 barrels a day at the Azeri-Chirag Gunashli oilfields.
- (Financial Times service/Reuters)
