Oil falls to $115 on economic worries, dollar gains

By Matthew Robinson Fri Aug 8, 4:05 PM ET

NEW YORK (Reuters) - Oil dropped $5 to a three-month low on Friday as the dollar surged and concerns about global economic growth weighed on demand expectations.

The fall came even as Russia sent forces into Georgia, a key energy transit region, to repel a Georgian assault on the breakaway South Ossetia region.

U.S. light crude settled down $4.82 to $115.20 a barrel, before falling to $114.90 in post-settlement trade, the lowest level since early May. Prices have slid since hitting a record high over $147 a barrel on July 11.

London Brent crude settled at $113.33, down $4.53.

"It seems that we've got a lot of selling based on the stronger dollar," said Peter Beutel, president of trading consultants Cameron Hanover.

"Energy demand destruction and the dollar return have formed a quiet alliance to bring the oil market down, and today the louder of the two is the dollar."

Strong demand from emerging economies like China sent oil on a six-year rally, with prices up sevenfold at their peak. More support came from investors rushing into commodities as a hedge against inflation and the weak dollar.

But mounting global economic problems and high fuel prices have begun to hurt demand.

The dollar surged against the euro and was on track for its biggest one-day gain in four years as concerns mounted that the U.S. economic slowdown was spreading around the world. USD/]

"The market has been ignoring the Tbilisi pipeline situation, and now the problems with Russia -- the move lower really now has a momentum of its own with the financial players coming out," said Olivier Jakob at Petromatrix.

Georgia's pro-Western president said on Friday the two countries were at war as Georgian troops backed by warplanes pounded separatist forces in South Ossetia and Russia sent forces to repel the assault.

Analysts were concerned fighting could disrupt energy exports from the Caspian region that travel through Georgia.

Oil had risen on Thursday due to the disruption of supplies through the Baku-Tblisi-Ceyhan pipeline following a blast this week in Turkey.

The pipeline was still burning, halting loadings of Azeri Light crude shipped to the Turkish port of Ceyhan, but the fire could be extinguished on Friday or Saturday.

Once the blaze is out, the pipeline could be reopened within 10 days. BP has cut output by at least 400,000 barrels a day at the Azeri-Chirag Gunashli oilfields, traders said.

(Reporting by Matthew Robinson, Robert Gibbons, Gene Ramos and Richard Valdmanis in New York; Margaret Orgill, Barbara Lewis and Ikuko Kao in London; and Felicia Loo in Singapore; Editing by David Gregorio)

Oil Falls 20% From July Record, Reaches Bear Market Threshold

By Margot Habiby

Aug. 6 (Bloomberg) -- Crude oil futures fell as low as $117.11 a barrel on speculation a slowing global economy will reduce demand, and after the dollar hit a seven-week high.

Today's 1.7 percent drop to the intraday low put prices more than 20 percent below the record $147.27 a barrel in New York on July 11; a drop of 20 percent is a threshold often seen as the start of a bear market.

Oil's decline follows a one-year doubling of prices as the dollar weakened, demand in Asia grew and Iran's nuclear program spurred concern that the country, the Middle-East's second- biggest oil producer, might face a military attack from Israel.

``We've been warning about the oil bubble bursting after reaching $150 because of investors pulling money out of the markets and the negative demand reaction,'' said Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt. ``At the moment we expect a corrective move to continue.''

Crude oil for September delivery fell 59 cents, or 0.5 percent, to $118.58 a barrel at 2:43 p.m. on the New York Mercantile Exchange, the lowest close since May 2.

Futures fell after a U.S. government report showed an unexpected increase in inventories and an extended decline in fuel demand.

Crude supplies rose 1.61 million barrels to 296.9 million barrels in the week ended Aug. 1, the Energy Department said today in its weekly report. Inventories were forecast to fall 200,000 barrels, according to the median of analyst estimates in a Bloomberg News survey.

Fundamental Shift

``The market focus is shifting back toward the direct oil fundamentals, such as how's demand, where's supply and where are inventories, and away from some of the wider issues like what's the Federal Reserve Board doing with interest rates,'' said Tim Evans, an energy analyst with Citi Futures Perspective in New York.

Brent crude for September settlement fell 70 cents, or 0.6 percent, to $117 a barrel on London's ICE Futures Europe exchange. Earlier, it touched $115.60 a barrel, 22 percent below its own record high of $147.50.

``The bubble has burst,'' said James Cordier, portfolio manager at OptionSellers.com in Tampa, Florida. ``As the dollar continues to stabilize, the excuse for buying commodities is ended. The dollar has been strengthening, and that is one big catalyst that is gone.''

Credit Restrictions

The dollar had weakened for almost three years, trading at a record low $1.6038 per euro on July 15, drawing investors to energy as a new asset class. Credit restrictions affecting the housing and banking industries are now causing many of these investors to cash out.

The dollar today touched $1.5398 per euro, its strongest against the European currency since June 16.

Commodities, as measured by the Reuters/Jefferies CRB Index of 19 raw materials, dropped for a fifth session and touched the lowest in almost four months. The index declined 10 percent in July, the biggest monthly slide in 28 years, and is down 16 percent from a record 473.97 on July 3.

The CRB fell 1.17, or 0.3 percent, to 397.24 at 4:03 p.m. in New York, down 16 percent from a record 473.97 on July 3.

Crude last fell 20 percent from a peak in January 2007, when prices declined as low as $49.90. Prices later rebounded and ended that year 57 percent higher.

Meaningful Benchmark

``I'm not sure 20 percent is a meaningful benchmark, because the rise has been so steep and so quick,'' said Antoine Halff, head of energy research at Newedge USA LLC in New York. ``We're not falling from established levels, but from a brief spike. This is not the same as falling from a plateau where we've been for months.''

Oil has lost more than $28 a barrel since reaching the record less than a month ago as unprecedented fuel costs prompted U.S. consumers to limit spending.

``I would hesitate to say this is the peak for this bull run,'' said Edward Morse, chief energy economist at Lehman Brothers Holdings Inc. ``It's a long-anticipated market correction. It's not clear how much prices overshot where fundamentals would have warranted them to be.''

U.S. fuel demand averaged 20.1 million barrels a day during the four weeks ended Aug. 1, down 2.6 percent from a year earlier, according to Energy Department data released today.

``It feels like there could be more downside, but we don't think there is more than $18 a barrel downside,'' David Pursell, an analyst at Tudor, Pickering, Holt & Co. in Houston, said. ``If you go below $100, OPEC is going to start jawboning and may cut production.''

Gasoline Falls

Gasoline for September delivery lost 0.71 cent to $2.9493 a gallon. Futures fell 13 percent last month, the biggest drop since September 2006, as a slowing economy cut demand for the motor fuel.

Regular gasoline at the pump, averaged nationwide, fell 0.9 cent to $3.862 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Pump prices reached a record $4.114 a gallon on July 17, as higher prices curbed demand.

``To me, this has been a bear market for months,'' Citi's Evans said. ``The price action didn't reflect it, but the amount of damage that high prices were doing to demand and the general uptrend to OPEC oil production were, in my view, clearly bearish.''

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net

Oil sinks on stronger dollar to $115 a barrel

By MADLEN READ, AP Business Writer Fri Aug 8, 6:25 PM ET

NEW YORK - Oil prices dove to $115 a barrel on Friday, driven lower by a huge jump in the U.S. dollar, signs of moderating demand around the world and the burgeoning belief that commodities may have peaked.

Shrugging off concerns about a sabotaged oil pipeline in Turkey, investors pulled their money out of commodities and put it back into stocks — giving crude oil a weekly loss of nearly $10 a barrel, and driving the Dow Jones industrial average up more than 300 points.

With energy losing its luster in the marketplace, the cost of roadside gasoline has been crawling lower. The average retail price for a gallon of gasoline slipped to $3.836 Friday. That's down about a penny from Thursday, and down nearly 28 cents from the record high of $4.114 reached July 17.

"We're probably going to see gasoline at the retail level around $3.50 for Labor Day," said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com.

Light, sweet crude for September delivery slumped $4.82 to settle at $115.20 a barrel on the New York Mercantile Exchange — its lowest settlement since May 1, when it settled at $112.52. During Friday's trading, crude dipped as low as $114.90. Prices for gasoline, heating oil and natural gas also dropped.

Many analysts have pointed to the $117-a-barrel mark for crude oil as technically significant — a move below this level suggests, they say, that oil's recent slide is more than a brief pullback. Crude is now down $32 from its high of $147.27 on July 11.

"You have to remember that this market has baffled anyone who's used fundamentals or charts. But if you're a chartist, today is the death knell for the possibility of new highs in the marketplace," said Tom Kloza, publisher and chief oil analyst of the Oil Price Information Service in Wall, N.J.

Lehman Brothers chief energy economist Edward Morse issued a research note Friday saying that, barring a physical disruption to supplies, "we think oil prices have peaked."

As the dollar launched a massive rebound against the euro and yen after the European Central Bank and the Bank of England both left their benchmark interest rates unchanged, energy traders found reason to sell — especially since the ECB indicated that there probably wouldn't be any more rate hikes to come.

Higher interest rates make a country's currency more attractive to invest in.

By the energy market's close, the euro had dropped to $1.5007 against the dollar, while the dollar rose to 110.22 yen. The British pound tumbled to $1.9193, after reaching its lowest point since November 2006.

The weak dollar had been boosting oil prices earlier this year, because dollar-denominated commodities are often used as hedges against inflation and a falling U.S. currency. Furthermore, the central banks' actions bolstered the growing belief in the energy markets that economies around the world are slowing alongside the United States, dampening global demand for crude oil products.

"The biggest driving factor now to the downside is the fact that the U.S. economy has a lot of company right now in terms of weakening economic growth," Cordier said, pointing to both China and India.

Behavioral changes have had a dampening effect too — Morse noted that U.S. drivers are switching to more fuel-efficient cars, and Cordier pointed to Beijing's June decision to remove half the cars from its roads by the time the Olympics begin.

Nymex front-month crude futures are down nearly 22 percent from their record high. They are still up, however, nearly 60 percent from a year ago.

Earlier this year, Americans were paying about $1.65 billion a day for gasoline at the peak of prices and demand, Kloza said. The country appears to be headed for below $1.5 billion a day now that prices are coming down and demand is slowing, he said, but he pointed out that that's still three times what Americans were paying in 2002.

Heating oil futures fell 10.56 cents to finish at $3.1280 a gallon on the Nymex, where gasoline futures fell 11.53 cents to close at $2.8874 a gallon. Natural gas futures fell 32.3 cents to settle at $8.248 per 1,000 cubic feet.

In London, Brent crude for September delivery fell $4.53 to finish at $113.33 a barrel.

Nymex crude oil had risen $1.14 Thursday to close at $120.02 a barrel after Turkey's state-run news agency Anatolia said the pipeline, attacked by the separatist group Kurdistan Workers' Party, could be shut down for up to 15 days.

The pipeline can pump slightly more than 1 million barrels of crude oil per day, or more than 1 percent of the world's daily crude output. In Turkey, pipeline shareholder BP PLC and other oil companies declared what's called a force majeure after the pipeline attack, freeing them of contractual obligations to deliver crude.

___

Associated Press writers Alex Kennedy in Singapore and George Jahn in Vienna contributed to this report.