Oil dips on stronger dollar

VIENNA: Oil prices sagged Friday as astrengthening dollar and worries about economic growth offset supply concernsover pipeline sabotage in Turkey that was claimed by Kurdish rebels. Light,sweet crude for September delivery fell US$1.94 to US$118.08 a barrel inelectronic trading on the New York Mercantile Exchange by noon in Europe. Thecontract rose US$1.14 cents overnight to settle at US$120.02 a barrel.

The gains Thursday in the U.S. came after pro-Kurdish news agencyFirat said the separatist group Kurdistan Workers' Party, known as PKK, admittedsabotaging the Turkish section of the critical Baku-Tbilisi-Ceyhan pipelineearlier this week. Turkey's state-run Anatolia news agency reported that thefire, which was said to be under control Thursday, could cause the pipeline tobe shut down for up to 15 days, stoking supply worries among oil market traders.

But the dollar has also strengthened against the euro and yen afterthe European Central Bank and the Bank of England both left their benchmarkinterest rates unchanged under conflicting pressure from higher inflation andmounting concern about economic growth.

In Asian currency trade, theeuro had dropped to US$1.5168 against the dollar, while the dollar hadstrengthened to nearly 110 against the yen. Investors have bid updollar-denominated oil futures this year as a hedge against a falling dollar andinflation, and any sign of a stronger greenback is often enough to give pause toa rally.

The central banks' actions fed investors sentiment thateconomic growth is slowing in the developed world, cutting demand for crude,said David Moore, a commodity strategist at Commonwealth Bank of Australia inSydney. ``The dollar is a factor, but the dominant factor is the perception thathigh oil prices coupled with slower economic growth in developed countries willcurb oil demand,'' Moore said. ``Oil prices are still at very high historicallevels.''

Vienna's JBC Energy also suggested that the bulls wouldprevail over the short term, saying in a research note: ``Fears that China
In London, SeptemberBrent crude was down by US$1.84 cents at US$116.02 a barrel on the ICE Futuresexchange. In Turkey, pipeline shareholder BP PLC and other oil companiesdeclared what's called a force majeure after the pipeline attack, freeing themof contractual obligations to deliver crude and still providing a floor toprices. ``The disruptions to that pipeline have provided some support to oilprices,'' Moore said.

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

Nymex front-month crudefutures are down about 18 percent from a record high of US$147.27 hit on July11. In other Nymex trading, heating oil futures slipped by more than 5 cents toUS$3.18 a gallon (3.8 liters) while gasoline prices fell by over 4 cents toUS$2.96 a gallon. Natural gas futures fell by more than 10 cents to US$8.47 per1,000 cubic feet.