Oil price fall sends Israel's Oil Refineries to quarterly loss

* Q2 loss $98.8 mln vs $50.1 mln yr earlier profit

* Refining margin above benchmark average

JERUSALEM Aug 13 (Reuters) - Oil Refineries (ORL), Israel's biggest refinery, said profitability would improve once a new facility to produce clean fuels came onstream in the coming months, after it swung to a quarterly loss, hurt by lower prices of oil and other fuel products.

The company, a subsidiary of conglomerate Israel Corp , also said it had suffered from the halt in natural gas supplies from Egypt as it had to use more liquid fuels, which cost more, to operate its plants.

ORL had been taking steps to improve efficiency, including the merger of several subsidiaries, upgrading equipment and switching its own production plants to natural gas.

Israel lost about 40 percent of its natural gas supplies in early 2011 when saboteurs in the Sinai peninsula began attacking the pipeline that carried gas to Israel from Egypt as part of a 20-year deal. In April, Egypt officially terminated the deal, sending Israeli customers scrambling to find alternative energy sources to generate power.

Oil prices fell at the start of the second quarter due to a waker European economy, higher crude supply and easing sanctions of Iranian oil.

"Frequent changes in oil prices and refining margins continue to influence the results of ORL as we see in the second quarter of 2012," said Yossi Rosen, ORL's chairman.

ORL on Monday reported a second-quarter loss of $98.8 million compared with a profit of $50.1 million in the year-earlier period, citing inventory losses caused by the sharp volatility in crude oil prices and petrochemicals products and gas shortages.

Revenue slipped to $2.45 billion from $2.65 billion.

Its adjusted refining margin was $6.1 a barrel, up from $1.5 a year ago and compared with the average Mediterranean Ural Cracking Margin quoted by Reuters of $5.6 per barrel.

ORL's new hydrocracker for the production of clean fuels, in which it invested $410 million, is expected to be operational at the end of the third quarter. This will improve margins by increasing the production of more profitable products.

"Improving gas supply and the successful and timely activation of the hydrocracker will provide the company with a significant milestone given the complexity and innovation of this project," said Pinchas Buchris, ORL's chief executive.

"This will have broad implications for the profitability of the group and will significantly elevate our business position and technological capabilities." (Reporting by Steven Scheer; Editing by Helen Massy-Beresford)