Weak demand outweighs Georgia conflict

Stevenson Jacobs

The Associated Press

Oil prices pulled back slightly on Aug. 14, a day after surging almost $3 a barrel, as waning U.S. demand for energy outweighed supply threats from the conflict in Georgia.

At the pump, retail gas prices slid further. A gallon of regular fell about a penny overnight to a new national average of $3.778, according to auto club AAA, the Oil Price Information Service and Wright Express. Gas prices in Alaska remained above $4 a gallon, the highest in the nation.

Crude dipped below $115 a barrel as traders continued to ponder the U.S. Energy Department report on weekly fuel inventories released Aug. 13. The department’s Energy Information Administration reported a bigger-than-expected drop in gasoline supplies but also said U.S. demand for refined fuel products continues to fall as Americans grapple with almost $4-a-gallon gasoline. The data seemed to confirm oil market analysts’ beliefs that Americans are still cutting back on their driving despite slightly lower pump prices.

Light, sweet crude for September delivery fell $1.25 to $114.75 on the New York Mercantile Exchange after alternating between positive and negative territory for most of the morning. Some pullback was expected as traders sought to cash in on the rally on Aug. 13, which temporarily halted a month long slide that took crude $35 below its July 11 high of $147.27.

“It’s just a market that has all the feeling of continuing to work lower until we get some definitive evidence that demand is going to improve because of lower pump prices, and that seems a long ways off,” said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.

Concerns from central Asia

The moderate sell-off on Aug. 14 was tempered by ongoing tensions in the near weeklong conflict between Russia and Georgia over two breakaway provinces. Secretary of State Condoleezza Rice on Aug. 14 urged Russia to honor a cease-fire with Georgia, a day after Moscow refused to leave the country despite having signed the EU-sponsored peace accord.

British oil company BP PLC said on Aug. 14 it has resumed pumping gas into the Baku-Tbilisi-Erzurum pipeline that runs through Georgia, but two oil pipelines remained closed. BP’s Baku-Supsa oil pipeline was shut as a precaution, and the larger Baku-Tbilisi-Ceyhan line remains out of action after a fire earlier this month on the Turkish section of the line.

“I think buyers are a bit edgy about the Russia-Georgia situation, knowing that’s not completely resolved. They’re looking for some geopolitical risk premium,” Ritterbusch said.

Dollar also impacting prices

Fluctuations in the value of the U.S. dollar have also played a role in setting oil prices, with the currency making a recent comeback on evidence that European economies are flagging. The 15-nation euro bought $1.4872 in morning trading, down from its level of $1.4934 in late trading on Aug. 13.

“According to our calculations, the exchange rate development has contributed $12.30 per barrel to the decline in oil prices since mid-July, when the US dollar hit a low of 1.6 against the euro,” said Vienna’s JBC Energy in a research note. “Since then the greenback has improved by 6.9 percent.”

Oil normally rises when the dollar is weak as investors move out of the currency and look to crude as a safe haven.

In other Nymex trading, heating oil futures slipped 2.66 cents to $3.105 a gallon while gasoline fell 3.79 cents to trade at 2.8944 gallon. Natural gas futures fell 30.8 cents at $8.148 per 1,000 cubic feet.

In London, Brent crude for September delivery fell 40 cents to $113.07 a barrel.

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