Oil falls below $114 on slowing economies

VIENNA, Austria - August 15, 2008 Light, sweet crude for September delivery fell $1.60 to $113.41 a barrel in electronic trading on the New York Mercantile Exchange by noon in Europe.The contract fell 99 cents overnight to settle at $115.01 a barrel. "Worries about an economic slowdown in the U.S. and Europe, and even Japan, are weighing on the oil market," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.

Gross domestic product in Germany, France and Italy all contracted in the second quarter. Japan said this week its economy also shrank in the April-June period.

The U.S. Energy Information Administration reported earlier this week a bigger-than-expected drop in gasoline supplies, but also said U.S. demand for refined fuel products continues to fall.

A stronger dollar this week is also helping to push oil prices lower. The dollar rose to above 110 yen on Friday, while the euro weakened to $1.4716.

"With the dollar gaining strength against the euro and yen, oil and other commodities have come down," Shum said. "Oil is not so much a hedge against a falling dollar anymore."

On the European market, Brent crude also has been lower recently. On Friday, it was fetching $111.93 a barrel down $1.75 on the ICE futures market.

Spot October Brent has closed lower "for the 17th time in the last 24 sessions," noted trader and analyst Stephen Schork, in a research note. That is "down by an average of $1.37 per barrel, per session," he added.

Oil fell despite ongoing tensions in the nearly weeklong conflict between Russia and Georgia over two breakaway provinces. Secretary of State Condoleezza Rice on Thursday 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 Thursday 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.

"This pipeline problem has simply been ignored by the market," Shum said. "I think $112 is still a key support level for oil."

In other Nymex trading, heating oil futures fell nearly 3 cents to $3.07206 a gallon (3.8 liters), while gasoline prices slipped by close to 5 cents $2.87645 a gallon. Natural gas futures were basically flat at $8.150 per 1,000 cubic feet.


Associated Press writer Alex Kennedy contributed to this report from Singapore.
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