Oil dipped below $63 a barrel on Friday after signs of flagging demand from the world's biggest consumer turned the tide on this week's brief rally.
US data on Thursday showed demand for gasoline and distillates stuck below year-ago levels, offsetting forecasts for a rebound in consumption next year that could keep overworked producers and refiners straining.
US light, sweet crude oil futures tripped 23 cents lower to $62.85 a barrel Asian trading, deepening on Thursday's more than $1 retreat. Oil prices, which hit a 10-week low of $60.25 on Monday, bounced back this week after the West's energy watchdog said demand growth would accelerate next year, despite record prices.
But later data from the US government undermined sentiment. US gasoline demand over the past four weeks averaged around 8.8 million bpd, 2.4 percent below the year-ago period, while distillate demand for that period was down 4 percent, weekly data from the Energy Information Administration (EIA) showed.
Those figures overshadowed a drop in oil product stockpiles, which was anticipated given the host of refinery outages after hurricanes Katrina and Rita.
"While stocks once again saw significant draws, the market's focus is currently set on seemingly weaker demand," said Citicorp analyst Doug Leggett in a report.
Oil prices have traded between $60 and $70 for the past two and a half months, with some traders fearful higher prices will curb demand or drive consumers to release more emergency supplies, and others anxious over refinery capacity constraints and the possibility of a tight market for winter heating fuels.
"We continue to view near-term sector weakness as more opportunity than risk as we head towards winter," Leggett said. Inventories of heating oil in the United States are 10 percent higher than a year ago, but some analysts fear refiners will be hard pressed to keep levels high.
The US Department of Energy said on Thursday it would not recommend tapping the government's emergency reserve of heating oil stocks.
Saudi Arabia's King Abdullah, in his first interview since coming to power, reiterated that the kingdom was working to curb high prices and had raised output to 10 million barrels per day (bpd), about 500,000 bpd more than previously thought. "
We believe that the damage to other countries (from high oil prices) is tremendous and we don't believe prices should be at this level," he said in excerpts from an interview with ABC Television's Barbara Walters.
The world's biggest exporter has committed to pumping as much oil as buyers want, but says it is a shortage of refining capacity and not crude production that has fuelled oil's rally.
As of Thursday, just over 10 percent of US refining capacity remained shut down from a peak of 25 percent paralysed after Hurricane Rita along with 69 percent of Gulf of Mexico oil production.
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