Oil slid to its lowest level in two months on Thursday as US drivers eased off the gas and an energy official suggested Washington may release emergency heating oil for winter.
News the world's top consumer was burning less fuel and the comments by the head of the US Energy Information Administration allayed concern Americans could run short of fuel with 10 refineries still shut by hurricanes.
US crude settled down $1.43 at $61.36 a barrel after having briefly dipped below $61, a nine-week low, in its fifth straight day of losses. Gasoline fell 6.73 cents to $1.8405 a gallon after Wednesday's 11-cent tumble.
Earlier at 0905 GMT London Brent crude was down 64 cents at $59.50.
"We're not a million miles away from where we were before Hurricane Katrina," said Emanuele Ravano, head of portfolio management at PIMCO in London. "In terms of miles driven, US motorists are being a little more cautious. But it remains open to question whether this is a two-week phenomenon."
Prices may have pulled back a long way from late August's record high - $70.85 for US crude - but in real terms they are still close to levels unseen in a quarter of a century.
The world's big consumers are feeling the pain. The European Commission forecast euro zone economic growth could slow in 2005 and noted risks from expensive oil. "I am struck that there is some demand destruction related to both high prices and logistic constraints," Claude Mandil, head of the International Energy Agency, told Reuters. The Paris-based organisation, adviser to the world's industrialised countries, has already launched one global release of emergency reserves this year - the first in over a decade - and is on standby to do so again.
"The question is, how long will demand destruction remain? If it stays a long time and increases, then maybe we don't need anything. If it is only temporary, it is more difficult to see a balanced market," he said in an interview.
Analysts at SG Commodities said they believed weaker demand would persist even with gasoline and heating oil trading below $2 a gallon. And US bicycle sales are booming.
Energy Secretary Sam Bodman said he expected oil firms to ask to borrow crude from government emergency stocks as their hurricane-damaged refineries restart. The United States may also sell crude from its Strategic Petroleum Reserve, he said.
The head of the Energy Information Administration, Guy Caruso, said a price trigger that would allow the government to tap into heating oil stores could also be met next week.
With US refiners working at only about 70 percent of capacity, the lowest since the government started keeping weekly records in 1990, fuel stocks fell heavily last week.
But those figures, released on Wednesday, were overshadowed by news that demand for refined oil products over the past four weeks was 2.9 percent down on the same period last year. Some analysts argued that prices may yet rebound.
Ten refineries, accounting for 14 percent of US capacity, remained completely shut on Thursday after hurricanes Rita and Katrina.
A strike at France's biggest refinery, Total's Gonfreville plant, and a blockade of the Fos-Lavera oil port near Marseille could take out up to 1 million bpd of refining capacity. France is a big exporter of gasoline to the United States. And high natural gas prices could increase demand for oil as an alternative heating fuel. Nearly three-quarters of offshore Gulf of Mexico gas production remains shut after the storms, and Bodman warned of "problems" in the market this winter.
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