Oil Sinks Despite Georgian-Russian Turmoil

Crude oil futures fell hard Monday despite a major military engagement in Europe that could have large repercussions on the global oil market.

For energy traders, the U.S. economy was clearly the top news issue Monday. However, the effect that the slower U.S. economy will have on the global supply/demand equilibrium for oil pales in comparison to the potential consequences of Russia's military engagement with Georgia.

Today at the New York Mercantile Exchange, futures for September West Texas crude fell 75 cents to $114.45 a barrel, and Brent settled flat at $113.33 a barrel. Heating oil shed a penny to $3.12 a gallon, reformulated gasoline lost a penny to $2.87 a gallon, and near-term natural gas edged 7 cents higher to $8.35 per million British thermal units.

Russia's new full-scale war -- its largest military engagement since the dissolution of the Soviet Union -- was generally overlooked by most energy traders today. However, the long-term ramifications of the conflict could alter global oil supplies in a major way and will likely have a much larger impact on oil prices in the long run than will minor adjustments to U.S. GDP growth.

Russia has now effectively split Georgia in half, according to corporate intelligence group Stratfor. Russia has taken the Abkahzia and Ossetia regions of Georgia, which make up most of the country's coastline on the Black Sea. According to reports, Russian troops have almost reached the city of Gori, which lies in middle of the country in the Shida Kartli region. Russia is also reportedly bombing the airport in Tblilisi, Georgia's capital.

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Source: CIA