Oil falls to three month low

Crude prices sink after a call for renewed talks about Tehran's nuclear program overshadows conflict between Russia and Georgia that could threaten a critical oil pipeline.

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By Kenneth Musante, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Oil prices fell Monday after Iran called for renewed nuclear talks and China reported a decline in crude imports, countering threats to supplies in Eastern Europe from the Georgia-Russia conflict.

U.S. crude for September delivery fell 75 cents to settle at $114.45 a barrel on the New York Mercantile Exchange, extending a multi-week slide that has knocked oil 22%, or about $34, from its peak.

Crude briefly dipped below $113 Monday before recovering some ground later in the session.

Nuke talks: Iran's chief nuclear negotiator agreed to a new round of negotiations with the European Union about its nuclear program, Iranian state-run media said.

The possibility of new talks eased worries that Iran could blockade the nearby Strait of Hormuz, a vital transport link for oil flowing out of the Middle East in the event of a conflict.

Concerns that a blockade could choke off oil supplies was one of the one of the forces behind oil's record rise to $147.27 on July 11.

China's falling demand: Concern about rising demand from emerging economies such as China and India also appeared to have abated.

China reported Monday that crude oil imports had fallen 7% to 13.79 million tons in July, down from 14.83 million tons 12 months earlier.

The Chinese report underscored concerns that the high price of crude oil and products made from it were taking a toll on consumption.

Dollar gains: The dollar rallied to five-month high against the euro Friday amid concerns about weakening European growth, and ticked up slightly on Monday as investors were becoming more cynical about oil.

"The fundamental case to justify $150 [a barrel] oil never made sense," said Stephen Schork, publisher of energy trading newsletter The Schork Report.

"I think it was a speculative bubble that people tried to massage the fundamentals around," said Schork.

The dollar, which took a big hit from the turmoil in the mortgage and credit markets, has made gains in recent weeks.

Crude is traded in dollars, so a stronger dollar makes oil futures more expensive to investors.

Georgian supply: Oil prices had risen overnight as the conflict intensified between Russia and the former Soviet republic of Georgia over control of the Georgian province of South Ossetia and its key pipeline - an important hub that transports crude oil between Europe and Asia.

Two pipelines run through Georgia, one from Baku to the Black Sea port of Sup'sa, and one from Baku to the Turkish city of Ceyan. The Ceyan pipeline is the bigger of the two, with a capacity of up to a million barrels of oil a day, according to Christopher Ruppel, energy analyst with Execution LLC.

The rally in early and late trading failed to gain steam because "nobody is going to damage the pipelines," said Ruppel. Both Georgia and Russia earn money from the vast oil and natural gas resources of Central Asia, he added.

However, Ruppel warned that the pipeline could come under the Russia's complete control, and that the country had used energy resources offensively by cutting off supply when diplomatically challenged.

Georgian president Mikheil Saakashvili signed an international-brokered proposal for a cease-fire Monday as fighting with Russia intensified.

Georgia, which has strong ties to the United States, has been developing closer relations with NATO. The country had been trying to assert control over South Ossetia and the province of Abkhazia, both of which have strong pro-Russian separatist movements.

Gas prices The price of gasoline in the United States, the world's largest crude consumer, has fallen for 25 straight days to a nationwide average of $3.81, according to motorist group AAA. The price is more than 30 cents below the record of $4.114 a gallon set July 16.

Still, gas prices were more than a dollar above where they were a year ago. To top of page

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