Oil prices fell 3 per cent after setting record highs at $55.33 a barrel yesterday as dealers took profits on signs that energy costs are hitting economic growth.
US light crude slid a $1.73 or 3 per cent to $53.20 a barrel after hitting the new peak. Brent crude in London fell $1.46 to $48.86 a barrel. Dealers said evidence was growing that rising fuel costs were beginning to slow the economic growth that helped ignite this year's $20-a-barrel price jump.
Last week's dip on the US stock market and a slump in the value of copper suggested the impact of rising energy costs was now being felt across asset classes, making an oil price reversal more likely as fuel demand growth slows.
"The action in the US stock market . . . and the pummelling base metals got both suggest that fears of a sharp, energy-induced slowdown are building," said Mr Edward Meir of brokers Man Energy. "If these fears find some basis in upcoming economic statistics, we could see a major shift in crude's bullish fundamentals."
US Federal Reserve chairman Mr Alan Greenspan last Friday said increased oil prices had already made a "notable" impact on US gross domestic product.
OPEC said yesterday it had made another upward revision to oil demand growth for this year, but cut its estimate of expected growth next year as high prices threaten to dampen consumption.
"The world oil demand growth forecast for 2004 has seen a further upward revision of 110,000 bpd to 2.6 million bpd due to this year's stronger than expected expansion in the world economy," OPEC said in its monthly oil market report.
"Due to lower-than-anticipated global economic growth and the possible effect that price levels could have on demand, oil demand growth in 2005 has been revised down by 130,000 bpd to 1.61 million bpd," the report added.
Demand growth should ease in China, which accounted for a third of this year's rise, the report said.
Separately, OPEC's influential long-term strategy committee has agreed the cartel should not raise its target price, as an upward adjustment would send the wrong signal to inflated oil markets, OPEC sources said yesterday.
"There was consensus not to change the price band," said an expert who attended the committee's meeting in Saudi Arabia last week. OPEC's reference crude oil basket has careered well above its official target range of $22-$28 a barrel all this year.
Worries about winter inventories - one of the factors driving up prices - are unlikely to disappear. US Gulf oil production is still running low after pipeline and platform damage from September's Hurricane Ivan.
The shortfall has limited refiners' ability to build up US heating oil stocks, which are 10 per cent below last year.
