Crude oil futures dipped below $114 a barrel in choppy trading yesterday after an energy watchdog predicted that producers would pump enough black gold to keep supplies at a comfortable level next year.
Concern that the downturn in the US economy would continue into 2009 and a stronger dollar also kept a lid on prices. Fighting between Georgia and Russia appeared to have only a slight impact on yesterday's dealing.
The International Energy Agency, in its monthly report, left its oil demand growth outlook virtually unchanged for this year, while raising its 2009 forecasts slightly.
But it cut its estimate for 2008 demand for oil from the Opec producers' cartel and predicted supplies would grow.
"Demand for Opec oil is going to be lower than its production capacity, so the market is looking forward to seeing an inventory build," said Olivier Jakob, an analyst at Petromatrix.
The news pushed US light, sweet crude down by $1.44 to $113.01 a barrel on the New York Mercantile Exchange while in London, North Sea Brent fell by $1.52 to $111.15 on London ICE Futures Exchange.
US crude has fallen by approximately $35 from its record high of more than $147, struck in July.
A closely-watched survey that showed economists have soured on the US economy's prospects for the second half of 2008 and have cut growth forecasts for next year as well, helped depress oil prices.
While government stimulus payments helped the economy expand at a reasonable annual rate of 1.9% in the second quarter, analysts polled by the Blue Chip Economic Indicators newsletter expect the air to go out of the economy as the temporary lift to consumer spending fades.
Meanwhile, BP said it shut down an oil pipeline that runs through Georgia as a precautionary measure, but added that it is unaware of any Russian bombings on pipelines in the region.
BP said the 90,000-barrel-a-day pipeline to Supsa on Georgia's Black Sea coast from Baku in Azerbaijan will remain closed indefinitely.
Another pipeline operated by the London-based oil company in the former Soviet Republic, the larger Baku-Tbilisi-Ceyhan pipeline, is already out of action after a fire last week on its Turkish stretch.
The BTC pipeline usually provides around one million barrels of Caspian crude to international markets.
BP spokesman Robert Wine said that the Baku-Supsa line was closed because it runs through the centre of Georgia, where there was a greater risk of conflict.
However, he added that BP had no reports of damage to pipelines in Georgia, despite claims from some officials there that Russian forces had attacked the lines.
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