Price of oil gyrates on demand concerns, pipeline fire in Turkey

Enlarge Photo
(The Canadian Press)

By Stevenson Jacobs, The Associated Press

NEW YORK - Oil prices fluctuated Thursday, erasing an earlier rally as growing concerns about falling U.S. demand for energy clashed with supply threats from a fire at a key Turkish pipeline.

Light, sweet crude for September delivery rose 21 cents to US$118.79 a barrel in afternoon trading on the New York Mercantile Exchange, but prices were alternating between positive and negative territory. Crude sank more than $6 over the previous three days, bringing prices $30 lower than its July high above $147 a barrel.

Oil earlier jumped above $121 a barrel after pro-Kurdish news agency Firat said the separatist group Kurdistan Workers' Party, known as PKK, admitted sabotaging the Turkish section of the critical Baku-Tbilisi-Ceyhan pipeline Tuesday night.

Turkey's state-run Anatolia news agency reported that the fire, which was said to be under control Thursday, could cause the pipeline to be shut down for up to 15 days, stoking supply worries among oil market traders.

But those concerns seemed to fade later in the day, prompting some investors to cash in on an increasingly rare oil rally, said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.

"It underscores the bearish nature of this market when it can't respond to seemingly bullish news" like the pipeline fire, Ritterbusch said.

At the pump, retail gas prices tumbled further overnight. A gallon of regular fell on average just over a penny to $3.849 (C$1.07 per litre), more than six per cent off record-highs above $4 a gallon reached last month, according to auto club AAA, the Oil Price Information Service and Wright Express.

In Canada, the average price for a litre of regular was C$1.31, unchanged from Wednesday, according to price watching website GasBuddy.com.

Before Thursday's rally, Nymex front-month crude futures had fallen around 20 per cent, or about $30, since reaching a record high of $147.27 on July 11. The decline comes amid mounting evidence that high energy prices are forcing Americans to cut back on driving.

The U.S. Energy Department's Energy Information Administration said Wednesday that crude supplies rose 1.7 million barrels in the week ended Aug. 1, while inventories of distillate fuel, which include diesel and heating oil, jumped 2.8 million barrels.

Meanwhile, EIA data showed gasoline stockpiles fell 4.4 million barrels last week, much more than the 1.4 million drop expected by analysts. The big drop in gasoline stocks surprised some oil market traders, but analysts said it likely signals that gas distributors have taken more deliveries from refiners as the summer driving season enters its last month - not that motorists are suddenly driving more in response to recent pullbacks in pump prices.

Pipeline shareholder BP PLC and other oil companies declared what's called a force majeure, freeing them of contractual obligations to deliver crude.

But BP spokesman Murat Lecompte told The Associated Press a terminal on the pipeline's southern tip had some crude stocks and that westbound shipments were continuing early Thursday. He added that he did not how long stocks would last or how long the pipeline would remain shut.

The fire raised the possibility of a prolonged closure of the U.S.-backed 1,100-mile pipeline, which allows the West to tap oil from Azerbaijan's Caspian Sea fields, estimated to hold the world's third-largest reserves, and bypass Russia and Iran. The pipeline can pump slightly more than 1 million barrels of crude oil per day, or more than 1 per cent of the world's daily crude output.

The market was also eyeing more tension over Iran's nuclear program. The five permanent U.N. Security Council members and Germany agreed Wednesday to pursue new sanctions against Iran, which will probably take months to implement.

Tehran has refused to curb its uranium enrichment and may be trying to run out the clock on the Bush administration in hopes of getting a better offer from a new U.S. president next year, the State Department said.

In other Nymex trading, heating oil futures fell about a penny to $3.2286 a gallon, while gasoline prices gained 1.2 cents to $2.9619 a gallon. Natural gas futures fell by 13.1 cents to $8.642 per 1,000 cubic feet.

In London, September Brent crude rose 16 cents to $117.16 a barrel.

-

Associated Press Writers C. Onur Ant in Istanbul, Turkey, George Jahn in Vienna, Austria and Alex Kennedy in Singapore contributed to this report.