Oil fell slightly on Tuesday, extending a slide sparked by evidence that high prices were starting to slow global economic growth and curb US fuel demand. Losses were checked by worries that the US oil industry's recovery from Hurricane Katrina two weeks ago had stalled, leaving 5 percent of the country's refining capacity and nearly half its Gulf of Mexico oil production offline.
US light crude settled down 23 cents to $63.11 a barrel, after dropping 74 cents in New York on Monday. Prices are more than $7 below record highs hit two weeks ago.
London Brent crude was off 19 cents to $61.61 a barrel, after falling more than $1 on Monday.
Crude oil spiked to $70.85 a barrel and US retail gasoline shot above $3 a gallon after Hurricane Katrina slammed into the US Gulf Coast in late August, cutting nearly all offshore production and shutting eight refineries. But for consumers, the worst may be over.
"The recent run up in prices should be enough to start demand retardation and to grind down prices over the next few years," said Credit Suisse First Boston.
Prices have been marching higher for the past two years as the world struggles to pump and refine enough oil to satisfy thirsty consumers in the United States and Asia.
US crude, up 46 percent since the start of the year, has been supported by investors piling into energy and out of low performing bond and equities markets.
Analysts say the economic shock from the disaster and ensuing oil rally may curb the rapid growth in oil consumption that has doubled crude prices in the past two years.
"While we do see signs of demand slowing, we still do not anticipate a 'crash,'" said a J.P. Morgan report. "There are, however, some chinks in the armour."
Fears of a gasoline-supply crunch in the world's top oil consumer following Hurricane Katrina's rampage into the US Gulf Coast have eased after the post-summer drop in demand and emergency imports.
Also taming fears, US Interior Secretary Gale Norton said Tuesday about 90 percent of US offshore oil and gas platforms in the gulf should be capable of producing by the end of September, even though some will be constrained by lack of onshore processing capacity.
As of Tuesday, about 43 percent of the region's crude oil output was operating, according to the US Minerals Management Service. The Gulf of Mexico is home to a quarter of US oil production.
The head of the International Energy Agency (IEA) said on Tuesday the group's 30-day oil rescue plan, for now, had prevented a global fuel crisis and that an extension of the release was unnecessary.
"My proposal, if it were made today, would be to stay with the present decision so far - and of course to let it work," IEA Executive Director Claude Mandil told Reuters.
The IEA board of governors meets on Thursday to review the volume and timescale of its release, which includes 1.3 million barrels per day of crude and just under 700,000 bpd of products.
Despite bearish market signs, dealers remained worried that a drawn-out recovery from Katrina will stretch supplies ahead of the peak demand during the Northern Hemisphere winter.
European governments, struggling to head off protests over soaring fuel prices, have asked companies in some countries to cut petrol prices and have called on Opec to boost production.
But this time round, the supply problem is on refined products - not crude. Three of the four refineries in the US still shut in Katrina's wake could remain down for months, US Energy Secretary Sam Bodman said Tuesday.
For its part, the Opec oil cartel has raised crude output sharply over the past years, up more than four million bpd to about 30 million bpd, and is now operating close to full capacity.
Opec members are likely to consider a supply increase of up to one million bpd when it meets on September 19 in Vienna.
"I think that is part of the answer," said the IEA's Mandil. "But what I expect most is a clear time table for when they will bring on more capacity of light sweet crude in the coming months."
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