Oil retreated below $65 on Thursday as dealers saw mounting evidence of eroding fuel demand and amply supplied crude markets. Oil cartel Opec forecast that rising pump prices would finally start to crimp world oil demand growth that has been powered by the world's biggest consumer the United States and the rapidly expanding economies of China and India.
The West's energy watchdog, the International Energy Agency, decided there was no need to increase its oil aid to the United States, satisfied that it had enough fuel to recover from Hurricane Katrina.
US light crude settled at $64.75 a barrel, down 34 cents. London Brent crude settled 21 cents weaker at $63.16.
The price of a barrel of crude may have eased from last month's record high of $70.85 a barrel after Katrina smashed into Gulf of Mexico rigs and refineries, but it is still up some 50 percent this year on the back of strong demand for oil and its products. "This crisis will last. All the factors have come together for oil to remain expensive for years and, alas, decades to come," French Finance Minister Thierry Breton said.
More than half of crude production in the Gulf of Mexico, which produces 25 percent of US oil, remains shut after the storm damaged oil fields.
Flaws in the global refining system again came into focus as oil firms spurned Opec's offer of additional high sulfur crude that is hard to process into light transport and heating fuels.
Saudi Arabia, the world's top crude exporter, said prices had been propelled higher by a shortage of refined oil products.
"The current rise in oil prices does not stem from a shortage in crude oil supplies but is due to, as everyone knows, to increased demand for products and a shortage in refining capacity," Saudi Crown Prince Sultan said in New York.
His remarks flatly contradicted recent comments by Britain's finance minister, Gordon Brown. Resisting calls to cut UK taxes on transport fuels, Brown instead urged Opec to pump more crude.
Opec meets next week to consider boosting production and the cartel's president, Sheikh Ahmad al-Fahd al-Sabah, has said he will propose a 500,000 barrels per day increase. Industry experts say such a move is a goodwill gesture. "There's not really much problem about crude oil supply," said Christopher Bellew of Bache Financial. "It's all about the lack of products."
Opec member Qatar echoed that hiking crude output would not calm prices. "The sharp demand for products is the reason behind the rise and not demand for crude oil," Energy Minister Abdullah al-Attiyah said. News of a bigger than expected drop in US heating oil stocks on Wednesday raised concerns that refiners would struggle to refill gasoline tanks while maintaining supplies of winter heating fuel.
US distillate stocks dropped 1.1 million barrels in the week to September 9, the first period to show the full impact of Hurricane Katrina, while crude oil inventories slid 6.6 million barrels.
Three of the four refineries still shut by Hurricane Katrina could remain out of commission for months, officials have said. The continuing loss of US natural gas production in the Gulf of Mexico is also driving prices.
As expected, the International Energy Agency board of governors decided against expanding a 30-day rescue plan aimed at helping the United States through its energy crisis. "The IEA governing board has decided to maintain its action of making available to the market 60 million barrels of oil and oil products for a period of 30 days," an IEA statement said.
The Paris-based agency will next review the plan at the end of September or in early October.
Earlier this week the US Energy Department said it had sold only 11 million barrels of the 30 million barrels of oil offered from its Strategic Petroleum Reserve. And a US official said on Wednesday Washington would not ask the IEA to release more stockpiled oil.
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