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NEW YORK: Crude oil prices slid to a four-month low on Tuesday after Russia announced the end of military operations in Georgia and the International Energy Agency forecast a steep drop in demand.
New York's main contract, light sweet crude for September delivery, sank 1.44 dollars to 113.01 dollars a barrel, the lowest level since April 15.
In London, Brent North Sea crude for September delivery lost 1.52 dollars to settle at 111.15 dollars a barrel.
Trading was volatile as investors reacted to developments in Georgia, where fighting between Russian and Georgian troops raised concerns in the oil market because the country is a key transit point for crude oil and gas exports from Azerbaijan to Western markets.
British energy giant BP announced on Tuesday it had closed the Baku-Supsa oil pipeline in Georgia as a precaution because of the fighting but said oil and gas supplies continued to flow from the Caspian Sea to the West by other routes.
A BP spokesman said oil was still being transported to the Georgian Black Sea port of Batumi by train and through an Azeri-operated pipeline.
"Geopolitical concerns always provide good support to oil prices and this news should offer some relief to investors worried about exports of Azeri crude from ports in Georgia," said Sucden analyst Andrey Kryuchenkov.
The decline in oil prices also was supported as the dollar hit a near six-month peak against the euro, pressuring demand for the dollar-priced commodity.
"The strong recovery in the dollar adds more pressure to the sector, which is already suffering from fears over slowing global growth," Kryuchenkov said.
The market was also dampened after the International Energy Agency (IEA) forecast a steep drop in demand in advanced countries because of high prices and cooling economies.
Crude oil prices have plummeted since hitting record highs above 147 dollars a month ago as the market frets about weakening demand amid the slowing global economy.
The IEA said in its monthly report that oil demand was slowing in advanced economies as people ease up on driving, supplies are rising and the market is set to cool well into next year.
But the IEA warned it was too soon to declare the price boom over, pointing to unexpected risks such as the conflict in Georgia with Russia which threatened "a key energy transit hub."
"While not ready to call an end to this year's bull market - especially considering the murky outlook for Chinese energy demand and continuing weather and geopolitical risks - the agency's assessment of increased supply and inventories from June to July provides some fundamental justification for the sharp fall in benchmark crude prices in July," analysts at JPMorgan Chase wrote in a client note.
Signs of slowing global demand were further confirmed by a report from the US Energy Information Administration.
The EIA, for the first time since February, lowered its prices forecasts for crude oil in 2008 and 2009, citing a decline in global consumption and increased production capacity in the Organisation of the Petroleum Exporting Countries, the cartel that supplies some 40 percent of the world's oil.
The agency said that the benchmark New York futures contract, which averaged 72 dollars a barrel in 2007, is expected to average 119 dollars in 2008 and 124 dollars in 2009.
The EIA's previous estimate was 127 dollars a barrel in 2008 and 133 dollars in 2009. - AFP/de
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