Though demand for fuels is eroding fast, especially in the U.S., the global oil market remains tight, susceptible to sudden external shocks able to arrest the recent downdraft in prices.
One such disruption -- a fire on a critical pipeline through Turkey -- is imperiling the flow of Caspian oil to global markets.
The explosion on the Baku-Tbilisi-Ceyhan, or BTC, pipeline helped drive U.S. crude prices up, reversing a four-week slide. On the New York Mercantile Exchange Thursday, crude for September delivery settled up $1.44 a barrel, or 1.2%, at $120.02 a barrel.
Events in Turkey came against a backdrop of bearish signals, with oil imports to the U.S. rising and evidence that an economic slowdown was eating away at demand.
The latest data from the Department of Energy, released Wednesday, showed crude inventories building much more than expected, though they are still below the five-year average.
But supply concerns weigh heavily on the market. Militant attacks on oil infrastructure in Nigeria continue, and there are still fears of a showdown over Iran's nuclear ambitions, which could halt oil exports out of the Gulf. Oil production outside the Middle East continues to disappoint as major projects are hit by fresh delays.
The fire at BTC, by far the worst incident to affect the one-million-barrel-a-day pipeline since it was commissioned in 2005, broke out early Wednesday and continues to rage. Rebels from the Kurdistan Workers' Party, or PKK, in a statement on their Web site claimed responsibility for the blast that caused the fire.
But a spokesman for the pipeline's operator, Botas International Ltd., said the cause, whether sabotage or a technical fault, was unclear. He said he expected the fire to burn itself out within a couple of days, but it was too early to say how long the pipeline would be out of action.
Oil from the BTC line is an important source of the 86 million barrels consumed globally each day. Any sustained outage would have a big impact on Azerbaijan, one of the biggest oil producers in the region, which sends most of its exports through BTC.
BP PLC, of the U.K., which is a BTC shareholder, said it is being forced to curtail production at two big oil and natural-gas fields it operates in the Caspian Sea to avoid a buildup of crude at its onshore facilities.
On Wednesday it declared force majeure on exports, meaning it may not be able to fulfill contractual obligations.
Running for more than 1,000 miles through Azerbaijan, Georgia and Turkey, BTC is one of the most strategically important pieces of energy infrastructure in the world. Strongly backed by the U.S., it was designed to be the first major pipeline to bring Caspian oil to Western markets without going through Russia, and thereby to ease Moscow's tight grip on oil exports from the region.
A spokeswoman for BP in Azerbaijan's capital, Baku, said the company was cutting back on production at Azeri-Chirag-Gunashli, or ACG, a complex of oil fields about 75 miles off the Azeri coast that produce some 800,000 barrels of crude a day, and at Shah Deniz, a big natural-gas reservoir that also yields some liquid condensates. She declined to say how much production would be closed.
The "precautionary measure" would help BP manage stock levels at the oil terminal near Baku that supplies BTC, she said. BP also is considering increased use of alternative export routes. These include a rail link to the Georgian Black Sea port of Batumi; a pipeline to Supsa, also in Georgia; and another pipeline to Novorossiisk, a Russian port on the Black Sea.
But the total combined capacity of the two alternative pipelines is 200,000 barrels a day -- a fifth of BTC's capacity. The Baku-Novorossiisk pipeline is also unpopular because oil transported through it is blended during transit with lower-quality Russian crude.
The resulting mix trades at a discount to the industry benchmark Brent, though the Russian pipeline monopoly Transneft pays no compensation for the loss in value, according to consultancy Wood Mackenzie.
In other trading Thursday: CORN: Prices rose, supported by heavy end-user pricing and strong export sales after recent losses. The Environmental Protection Agency's decision to reject a request by Texas for a waiver of the federal renewable-fuels mandate was seen as having little effect on the market.
The EPA's rejection of Texas's petition wasn't a surprise, analysts said. "I think it may have had a different reaction if corn was at $8, rather than road tripping back to where prices were back in January," said Bill Nelson, grains analyst at Wachovia Securities. Falling corn and crude oil have caused "the passion to cool a bit" regarding government intervention in the markets, said Vic Lespinasse, an analyst with grainanalyst.com.
Chicago Board of Trade September corn gained 14.25 cents to $5.2225 a bushel. WHEAT: Futures rose on ideas that a price setback has sparked renewed interest from importers. Recent purchases of U.S. wheat by major foreign buyers have helped put a floor under prices. Nearby Chicago Board of Trade September wheat in late trading briefly climbed the daily, exchange-imposed limit of 60 cents before settling up 56.50 cents at $8.2225 a bushel.