Oil falls as Turkey worries ease

Oil fell below $118 yesterday as supply concerns eased after an indication that a key oil pipeline through Turkey, still burning after an explosion, may reopen earlier than previously expected.

A rise in the dollar to a five-month high against the euro, in a turnaround after months of weakness also weighed on the oil market.

US light crude was down $2.29 to $117.73 a barrel by 1130 GMT. London Brent crude fell by $2.36 to $115.50.

Oil has lost $30, or around 20 per cent, since hitting a record high of $147 in mid-July

US crude settled $1.44 higher on Thursday as the Baku-Tblisi-Ceyhan pipeline continued to burn, stopping loadings of Azeri Light crude from Ceyhan, a key export terminal in the Mediterranean.

The fire was set to be extinguished yesterday or today and once the blaze is put out, the pipeline may be reopened within 10 days, said a senior source at Turkey's energy ministry. Previously, the pipeline had been expected to reopen in one to two weeks.

BP has cut oil output by at least 400,000 barrels a day at the Azeri-Chirag Gunashli oilfields after the explosion on the pipeline, traders said.

"The explosion is going to make some tightness in the physical oil market. The fire is not fully extinguished so a full assessment of the damage has not been done," said Olivier Jakob of Swiss-based analysts Petrologistix.

Another potentially supportive factor is the escalating fighting in the Black Sea state of Georgia, through which oil and gas flows from Azerbaijan to Turkey.

Fighting raged around the capital of Georgia's breakaway South Ossetia yesterday as Georgian troops, backed by warplanes, pounded separatist forces in a bid to retake control of the territory.

In terms of the wider energy market, a fall in heating oil and diesel markets in Europe and the United States, which had been a key factor in oil's climb to record highs, is weighing on crude regardless of supply problems, Mr Jakob said.

The surge in US heating oil markets was driven by exports to Europe and to Latin America but now these exports are starting to wane, partly due to competition from Asia.