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Oil falls as dollar rises, ignores Georgia conflict

LONDON - Oil fell $4 to below $116 on Friday in line with declines across the commodities complex as weaker demand and a stronger U.S. dollar outweighed concern conflict in Georgia could disrupt Caspian energy supplies.

U.S. light crude was down $3.50 at $116.52 a barrel by 1430 GMT, up from an intraday low of $115.75.

London Brent crude fell by $3.52 to $114.34.

Oil has lost over $30, or nearly 20 percent, since hitting a record high of $147.27 in mid-July.

"It seems that we've got a lot of selling based on the stronger dollar," said Peter Beutel, president of trading consultants Cameron Hanover.

"Energy demand destruction and the dollar return have formed a quiet alliance to bring the oil market down, and today the louder of the two is the dollar."

The dollar rose to a seven-month high against the yen on Friday, helped by the drop in oil prices which boosted U.S. stocks.

Oil had rallied slightly on Thursday, driven upwards by the disruption of supplies through the Baku-Tblisi-Ceyhan pipeline following a blast earlier this week in Turkey.

The pipeline was still burning, halting loadings of Azeri Light crude shipped to the Turkish port of Ceyhan, but the fire could be extinguished on Friday or Saturday, a senior source told Reuters.

Once the blaze is out, the pipeline could be reopened within 10 days, the source said, but meanwhile BP has cut output by at least 400,000 barrels a day at the Azeri-Chirag Gunashli oilfields, traders said.

Analysts are concerned fighting in Georgia's breakaway South Ossetia region could lead to much wider disruption of exports from the Caspian region as Georgia is a major energy transit route.

Georgian troops backed by warplanes pounded separatist forces on Friday and Russia sent forces to repel the assault.

"In other circumstances, you might have expected it to push oil up $5," said John Kemp, economist at RBS Sempra. "I think it's an indication of how bearish the underlying sentiment is right now (that it hasn't)."

Bearishness has grown after oil prices fell through key technical support around $120 and as stocks of refined products have swollen, dragging down heating oil and diesel markets in Europe and the United States.