Oil price dives after Russia’s ‘ceasefire’ in Georgia conflict

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Crude had jumped amid concerns about disruption to Western oil supplies from the conflict near the crucial Baku-Tbilisi-Ceyhan pipeline but this afternoon it fell back to three-month lows.

London Brent crude was down 87 cents a barrel at $111.80 while New York was $1.03 lower at $113.42.

The fall came despite BP's decision this afternoon to close two pipelines in Georgia following claims from the Georgian government of Russian bombing.

Georgia said Russia had dropped three bombs in the area through which the Baku-Supsa oil pipeline runs. One bomb hit the pipeline without exploding, it said.

Russia denied the bombing claim and BP later said it was unaware of any such action. "All our facilities are intact, " said a spokesman.

However, as a precaution, it closed the Baku-Supsa and South Caucasus gas pipelines.
The Russian rouble rocketed 1.2% against the dollar, the most in seven years, while shares in the country jumped 4% as President Dmitry Medvedev publicly confirmed the ceasefire order to his troops.

"Medvedev's decision to halt Russia's military operations triggered some frenzied buying," said Julian Rimmer, head of sales trading at brokers UralSib Financial in London.

On Friday, Russia's Micex of 30 leading shares slumped to a 22-month low and the rouble crashed to three-year lows as Moscow sent tanks, troops and warplanes into South Ossetia. Even with today's bounceback, the Micex remains down 22% this year.

The oil price has fallen more than 20% in recent weeks. It peaked at more than $147 in July but has dropped sharply since, partly due to the increase in the value of the dollar. The International Energy Agency helped the oil price fall further this afternoon by cutting its estimate for 2008 demand for oil from Opec.