Supply worries nudge oil higher

Concern about wider conflict in Eastern Europe sends crude prices higher, but oil held in check by better read on U.S. economy.

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By Kenneth Musante,

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NEW YORK ( -- Oil prices rose slightly Monday as a flat U.S. dollar countered worries that tensions with Russia could interrupt the flow of crude between Europe and Asia.

U.S. crude for October delivery rose 52 cents to settle at $115.11 a barrel after the dollar turned slightly higher against the euro.

Eastern Europe: Oil prices inched higher as the Russian government voted to recognize the independence of two breakaway regions from the Eastern European nation of Georgia, home to a key pipeline link.

Investors worried that aggression from Russia could spark a confrontation with the European Union or the U.S.

Despite a stated withdrawal of Russian forces from Georgian territory, tensions remained high.

"Markets are concerned that if tensions keep escalating, a larger action could be taken by either Russia or the West that could disrupt oil flows in the region," said James Crandell, energy research analyst with Lehman Brothers.

Concerns about supply eased a bit over the weekend as a BP-led consortium resumed operations at the Baku-Tbilisi-Ceyhan pipeline, which carries oil through Georgia to the Caspian Sea.

The pipeline had been disabled by a fire along its Turkish stretch before the conflict between Russian and Georgia began.

The facility resumed normal operations as planned, according to BP spokesman Toby Odone.

"The problem with the Russians and Georgia has highlighted European dependence on oil from Russia," said Robert Brusca, economist with FAO Economics in New York.

Flat Dollar: The U.S. dollar moved fractions of a penny higher against the euro during Monday trading, as a better than expected read on the U.S. real estate market allayed fears of a weaker U.S. economy.

A real estate trade group said that existing U.S. home sales rose to an annual pace of 5 million in July. Economists had expected an annual rate of 4.9 million.

The real estate market has been one of the factors dragging down the U.S. economy and affecting the strength of the dollar.

Oil futures are traded in dollars, so when the greenback strengthens, oil becomes more expensive for foreign investors. Many also buy commodities, particularly crude oil, to hedge against inflation.

Oil declines were limited however, since the dollar remained down against most other major currencies such as the Japanese yen.

Demand: Investors continued to fear that global economic problems would cut into oil demand.

Economic reports last week revealed declines in the 15-nation euro zone economy. A decline in economic activity often heralds a decline in the consumption of oil products as businesses cut back on shipping and people travel less.

The euro's weakness versus the dollar Monday also aggravated concerns about the strength of Europe's economy, which is just one of the factors that the Organization of Petroleum Exporting Countries will need to address when it meets next month.

The oil cartel manages oil production for 12 of the world's oil producers. Escalating oil prices could have a severe impact on the global economy and permanently affect demand - and thus send prices crashing, according to Brusca. To top of page

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