Oil Rises More Than $5 on U.S.-Russia Tensions, Dollar Weakness

By Mark Shenk

Aug. 21 (Bloomberg) -- Crude oil advanced more than $5 after the signing yesterday of a missile-shield agreement between the U.S. and Poland bolstered concern that Russia may disrupt the flow of oil.

The U.S. missile shield in Europe, which has ``a real anti- Russian potential, won't increase the continent's security,'' Russia's Foreign Ministry said. Russia is the world's second- biggest oil producer. Oil also climbed as the dollar fell to the lowest against the euro in a week.

``The tensions between Russia and the West were supposed to be simmering down but they are now ratcheting up because of Poland's agreement with the U.S.,'' said Gene McGillian, an analyst at TFS Energy LLC in Stamford, Connecticut. ``The fall of the dollar is sending a huge investor flow into commodities.''

Crude oil for October delivery rose $5.02, or 4.3 percent, to $120.58 a barrel at 10:44 a.m. on the New York Mercantile Exchange. Futures are down 18 percent from a record $147.27 reached on July 11. Prices are up 72 percent from a year ago.

Brent crude oil for October settlement rose $5.18, or 4.5 percent, to $119.54 a barrel on London's ICE Futures Europe exchange.

``The dollar has been the big driver of both the rally and the pullback,'' said Kevin Kerr, president of Kerr Trading International in Wilton, Connecticut.

The dollar fell to $1.4887 per euro, from $1.4747, and touched $1.4891, the weakest since Aug. 14. The U.S. currency has climbed versus the euro since touching an all-time low of $1.6038 on July 15.

Hard Assets

``The dollar's rise was too swift to have faith in,'' said John Kilduff, senior vice president of risk management at MF Global Inc. in New York. ``The resumption of the currency's fall has increased the appeal of hard assets.''

The UBS Bloomberg Constant Maturity Commodity Index, which tracks 26 raw materials, gained 2.3 percent to 1485.943 today, the highest since Aug. 4.

Russia has defied calls by U.S. President George W. Bush and other Western leaders for an immediate withdrawal from Georgia since a cease-fire agreement last week ended five days of fighting.

The Baku-Supsa pipeline, which pumps more than 100,000 barrels of oil a day from the Azerbaijan to the Georgian port of Supsa on the Black Sea coast, is still shut on security concerns following fighting between Georgian and Russian troops, Toby Odone, a London-based spokesman for BP, said today by telephone. Railway transportation to Georgia's Black Sea ports has also been suspended because of a damaged bridge.

The Baku-Tbilisi-Ceyhan pipeline, which transports oil from Azerbaijan through Georgia to Turkey's Mediterranean coast, will be fully operational this week and tanker loading will resume next week, officials said. The pipeline has a capacity of 1 million barrels a day.

`Geopolitical Worries'

``I've been waiting for the gathering geopolitical worries to pump up the security premium,'' Kilduff said. ``The increase in tension with Russia will probably spell the end of cooperation on the Iran nuclear front.''

The U.S. and its European allies are trying to persuade Iran to halt its uranium enrichment program, saying it's a cover for developing nuclear weapons. Iran is the world's fourth-biggest oil producer.

``The hope was that Russia's fields would be developed and the barrels made available,'' Kerr said. ``If you are a multinational, you are already afraid of nationalization of your assets. Now, with the recent problems between Russia and its neighbors, nobody is going to invest there.''

TNK-BP, a 50-50 venture between BP Plc and a group of billionaires known collectively as AAR, is embroiled in a dispute over strategy and management. BP, which relies on the company for almost a quarter of its output, is struggling to maintain control amid pressure on foreign employees.

Gasoline Supplies

U.S. gasoline supplies fell 6.2 million barrels last week, the U.S. Energy Department said in a report yesterday, more than double analysts' predictions. Crude-oil stockpiles rose 9.39 million barrels to 305.9 million barrels, the biggest gain since March 2001, the report showed. Stockpiles fell the previous week when Tropical Storm Edouard hit Texas.

Refineries operated at 85.7 percent of capacity in the week ended Aug. 15, down 0.2 percentage point from the week before and the lowest since the week ended May 2, the report showed.

``The market shrugged off the big crude build because they attributed it to delayed imports that couldn't arrive during the week of Edouard,'' McGillian said. ``More attention was paid to the drop in gasoline stocks and refinery runs. If refiners continue to operate at this level we won't be able to build product inventories.''

Gasoline for September delivery rose 11.22 cents, or 3.9 percent, to $3.0225 a gallon in New York.

Pump prices haven't increased since July 19, according to the AAA, the nation's largest motorist organization. Regular gasoline, averaged nationwide, fell 1.5 cents to $3.702 a gallon, the AAA said today on its Web site. Prices reached a record $4.114 a gallon on July 17.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

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My opinion:

Today is the 21st of August. nearly 3rd QTR is up. This means that in just less than 8weeks we are entering the 4th QTR...

WHAT HAPPEN in that QTR every year that affect the market ???

Lots of climatic n weathering conditions worsening. More storms, More hurricanes, More oil rigs in danger of destroy, forcing oil price up.
When Mr weatherman announces the year end winter will be harsher than last year again, this signals yet another price up for OIL !...Mr weatherman certainly invests in OIL, dont you think so ?

Lastly, if the oil is already building up now due to external factors and current news.
Certainly the tension between US and RUSSIA is not helping. The war in Georgia is not helping. The Iranians are definitely not on the USD side.

So, BUY BUY BUY . OIL is the current future .

read up more on: All ABOUT OIL
also a reminder you can trade on FOREXyard on oil. CLICK HERE

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