Daily Mirror
August 11, 2008

World oil prices rose by more than one dollar in Asian trade Monday on supply concerns amid the escalating fighting between Georgia and Russia, dealers said.

In afternoon trade, New York’s main contract, light sweet crude for September delivery, was up 1.54 dollars at 116.74 dollars a barrel.

London’s Brent North Sea crude for September delivery gained 1.80 dollars to 115.13.

Supply disruptions are once again a major concern. The head of Azerbaijan’s state oil company said Saturday that exports had been halted via two Georgian ports due to the fighting.

That announcement came shortly after Georgian Prime Minister Lado Gurgenidze said that Russian warplanes had staged a raid near the Baku-Tbilisi-Ceyhan (BTC) pipeline, the world’s second longest.

Georgia does not produce oil but the country is a key transit point for crude and gas exports from Azerbaijan to markets in the West.

“I think the Georgian issue is helping the market to focus back on the supply side… that has really changed the market quite a bit,” said Gerard Burg, an energy and minerals economist with National Australia Bank.

David Moore, commodity strategist with the Commonwealth Bank of Australia, said oil traders would be closely monitoring the military conflict.

Inaugurated in 2006, the BTC pipeline carries oil from Azerbaijan on the shores of the Caspian to Western markets via the Turkish Mediterranean port of Ceyhan. It is capable of transporting 1.2 million barrels a day.

British oil giant BP has a 30 percent stake in the pipeline, which cost three billion dollars to build, along with some 10 other partners including US oil groups Chevron and ConocoPhillips.

Transporting oil through the Caucasus is designed to make the West less dependent on supplies from Russia, which has shown a willingness to close the taps in disputes with other ex-Soviet states in recent years.

BP is also the operator of the South Caucasus pipeline that transports gas from Azerbaijan’s vast Shah Deniz offshore field via Georgia to the Turkish border.

Analyst Natalia Leshchenko of Global Insight said the current conflict should have little effect on the pipelines in the immediate future.

“The task of the Russian forces at present is to ensure control of South Ossetia…. The pipelines would be in danger only if the war escalated,” she told AFP.

Supply concerns pushed oil to record highs above 147 dollars in July but slowing economic growth globally has seen prices ease sharply in recent weeks.

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