Aug.12. In global petroleum market news, oil prices closed at a new 3-month low Monday after briefly dropping below USD 113 a barrel mark, as the dollar extended its rebound and more signs emerged that China's energy demand could be tapering off. After shedding nearly USD 10 a barrel last week, light, sweet crude for September delivery dipped another 75 cents to settle at USD 114.45 a barrel on NYMEX. It was the lowest close since May 1. In London, Brent crude for September delivery fell 78 cents to USD 112.04 a barrel. In early trading, oil fluctuated as traders monitored the conflict between Russia and Georgia that some believe could disrupt supplies. But those worries faded to the background as the dollar's recovery accelerated, and as the energy market focused on a report from China that the country's crude oil imports in July were down 7% from last year. Also, investors appear to be selling commodities to get back into stocks, which traded higher by midday trading Monday. On Friday, the Dow Jones industrial average surged more than 300 points. It’s noteworthy that crude oil open interest — or the number of futures contracts that are not closed or delivered on a given day — has sunk by more than 100,000 contracts since the record high in mid-July, a sign of heavy liquidation. Crude, gasoline and heating oil prices had traded higher in earlier trading on concerns that shipments from two Georgian ports could be hindered by the violence in the region. The South Ossetia province broke away from Georgian control in 1992. Georgia, whose troops have been trained by American soldiers, began an offensive to regain control over South Ossetia last week. Georgia says it was responding to attacks by separatists. In response, Russia launched attacks on Georgian troops. On Monday, Russia opened a second front of fighting in Georgia, and the world's seven largest economic powers called on Russia to accept an immediate cease-fire. Georgian President Mikhail Saakashvili on Monday accused Moscow of trying to overthrow his government as Russian troops pushed into two separatist regions of his country and rejected a Georgian ceasefire proposal. Meanwhile, Russian President Dmitry Medvedev said that a military operation in South Ossetia was nearly over, Interfax news agency reported. "A significant part of the operation to force the Georgian authorities to make peace in South Ossetia has been concluded," Medvedev said. "Tskhinvali is under the control of a reinforced Russian peacekeeping contingent." Moving forward, we believe that right now the market is more focused on signs that the US economic slump will extend into 2009 than the Caucasian conflict, as well as signs of softening global demand and a stronger greenback. These bearish trends likely point to more downside ahead, since crude futures have broken through the USD 117 resistance level. However, as we noted yesterday, the upside could resume if the war between Russia and Georgia becomes drawn out or escalates.