Aug. 7 (Bloomberg) -- Crude oil rose for the first time in four days after Turkey said a pipeline carrying crude to the Mediterranean from Azerbaijan may remain shut for two weeks following an explosion on Aug. 5.

The pipeline is able to ship 1 million barrels a day, Ali Gungor, governor of the Erzincan province, where the blast occurred, said today. A Kurdish separatist group claimed responsibility for bombing the line, which is still burning.

``This is a global market, so it does have an impact'' around the world, said Peter Beutel, president of Connecticut- based Cameron Hanover Inc. ``This is a pipeline that has not been attacked before. To have it now politicized by the Kurds opens up a whole new realm of political frustration and supply loss.''

Crude oil for September delivery rose $1.97, or 1.7 percent, to $120.55 a barrel at 10:47 a.m. on the New York Mercantile Exchange. Earlier, the contract touched $121.78 a barrel.

New York futures fell as low as $117.11 a barrel yesterday after an increase in U.S. inventories. That's more than 20 percent below the record $147.27 on July 11, a threshold commonly seen as the start of a bear market.

``That there's no significant follow-through selling after going through some stops yesterday shows there's strength in the market,'' said Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York. That's adding support along with concern about the Turkish pipeline, he said.

Pipeline operator BP Plc canceled export obligations.

Kurds

The fire continues to burn in a ``controlled manner,'' Huseyin Sagir, a spokesman at Turkish pipeline company Botas International, said.

The Kurdistan Workers' Party, or PKK, said it bombed the pipeline, the Kurdish news agency Firat said on its Web site today. The PKK, which has been fighting for autonomy in largely Kurdish southeast Turkey for two decades, attacked a section of the pipeline in east Turkey late on Aug. 5, the report said.

``Flows from the Caspian play an important role in non-OPEC supply growth this year, given an increasingly deteriorating growth outlook for Russia,'' said Harry Tchilinguirian, senior oil analyst at BNP Paribas SA in London. ``The region is one of the fastest areas of crude supply growth.''

Azerbaijan and other ex-Soviet states are among producers outside the Organization of Petroleum Exporting Countries that supply about 57 percent of the world's oil, according to the International Energy Agency.

Output from Russia and the other former Soviet states averaged 12.8 million barrels a day in 2007, including 868,000 barrels a day from Azerbaijan, according to the BP Statistical Review of World Energy. The U.S. imported 68,000 barrels a day from Azerbaijan in May, according to the latest data from the Energy Department.

Ex-Soviet States

Azerbaijan plans to pump 1.2 million barrels a day next year, President Ilham Aliyev said in June. That's up from a daily rate of 868,000 last year.

Output in Russia, the largest producer outside OPEC, fell to 9.78 million barrels a day last month, down 1.1 percent from last year, the government said. Drillers in the country face aging fields and rising costs.

Oil may trade near $115 a barrel in the coming months as demand slows and supply increases, according to Thomas O'Malley, chairman of Petroplus Holdings AG, Europe's biggest independent refiner by capacity.

``High crude oil prices and extreme volatility are causing demand destruction, primarily in the U.S. If we get a period of stability around these numbers, demand destruction will be limited,'' he said.

Brent crude for September settlement rose $1.12, or 1 percent, to $118.12 a barrel on London's ICE Futures Europe exchange. Earlier, it touched $119.75 a barrel. Yesterday, the contract declined to $115.60 a barrel in intraday trading, 22 percent below its record of $147.50.

U.S. Supplies

Crude-oil supplies rose 1.61 million barrels last week, and fuel consumption was 2.6 percent lower in the four weeks ended Aug. 1 from a year earlier, the U.S. Energy Department said. Gasoline supplies fell 4.34 million barrels, or 2 percent, to 209.2 million barrels, the biggest drop since April.

Gasoline for September delivery rose 6.12 cents, or 2.1 percent, to $3.0105 a gallon. Futures fell 13 percent last month, the biggest drop since September 2006, as a slowing economy cut demand for the motor fuel.

Regular gasoline at the pump, averaged nationwide, fell 1.3 cents to $3.849 a gallon, AAA, the nation's largest motorist organization, said today on its Web site. Pump prices reached a record $4.114 a gallon on July 17.

To contact the reporter on this story: Margot Habiby in Dallas at mhabiby@bloomberg.net.

Last Updated: August 7, 2008 10:47 EDT