Oil falls to 3-month low, IEA, Georgia in focus

U.S. crude fell to a session low of $112.48 a barrel, the lowest since early May, and was trading $1.32 lower at $113.13 by 0955 GMT. London Brent crude LCOc1 was $1.37 lower at $111.30.

The IEA, the energy adviser to 27 industrialised countries, left its demand growth outlook virtually unchanged for this year, while raising its 2009 forecasts slightly. But it cut its estimate for 2008 demand for oil from OPEC and predicted supplies would grow.

"Demand for OPEC oil is going to be lower than its production capacity. So the market is looking forward to seeing an inventory build, " Olivier Jakob with Petromatrix said.

U.S. crude has fallen by about $35 from its record high above $147 struck in July.

Oil markets have remained under pressure in spite of disruption from the key Turkish port of Ceyhan following an explosion at the Baku-Tblisi-Ceyhan (BTC) pipeline.

The explosion was not linked to a five-day war between Russia and Georgia, through which the BTC link runs.

Russian President Dmitry Medvedev ordered a halt to the military operations in Georgia on Tuesday just before French President Nicolas Sarkozy was to hold peace talks in Moscow.

A stronger U.S. dollar has added to the impetus to the oil sell-off and other dollar-denominated commodities, which become more expensive for non-dollar investors as the U.S. currency gains strength.

The U.S. dollar rose to a six-month high against the euro, which has weakened since European Central Bank President Jean-Claude Trichet said last week the euro zone economy was slowing more than policy-makers had expected.