Oil prices jumped to record highs above $54 on Tuesday as supply hitches hindered efforts to build winter heating fuel inventories. They later shed over a $1 a barrel as traders took profits from the surge. US crude set a record $54.45 a barrel, marking a sixth successive day of all-time peaks, before slipping to end at $52.50, losing $1.14 on the day.
In London, Brent crude hit $51.50 a barrel, before retracing to $49.60. November gas oil on the International Petroleum Exchange hit $500 a tonne before ending at $471.50.
Oil prices have leapt 66 percent this year as the strongest demand growth in 24 years caught producers by surprise, leaving a tightly stretched global supply system little leeway to deal with outages.
Winter fuel is in short supply around the globe, with end-September European distillate stocks 3.4 percent below last year and kerosene supplies in Japan down 20 percent from 2003.
In the United States, weekly distillate stockpile data out Thursday is expected to record a fall of 1.1 million barrels, a Reuters poll of analysts showed. US heating oil inventories already are at a 6 percent deficit versus last year.
"The fear is that there will not be enough heating oil and we are already seeing colder weather in the (US) Northeast," said John Brady, a broker with ABN Amro in New York.
US forecasters said on Tuesday the Northeast, where nearly 80 percent of the nation's home and business heating oil demand is, will not experience significant cold for atleast another two weeks, but there will be a brief chill in the corridor from Boston to Washington this weekend.
"There is no concrete evidence of a shortage or of harsh weather, but the market takes the path of least resistance," said Mike Fitzpatrick, vice president of risk management at Fimat USA. "It is driven right now on emotion."
Price gains were bolstered by news that saboteurs had set fire to a major oil pipeline feeding the Bonny export terminal in Nigeria, which exports 500,000 barrels per day of crude.
Operator Royal Dutch/Shell said it was diverting supplies to an alternative pipeline and that 20,000 bpd of crude had been shut in for a few days. Nigerian crude is prized for its yield of transportation and heating fuels.
Nigeria, Opec's sixth biggest producer, has managed to keep exports flowing normally despite a series of threats this month, including this week's general strike over fuel prices.
High prices are beginning to slow the world economy and encourage energy saving measures in China, the International Energy Agency said Tuesday.
The Paris-based IEA cut its forecast for world oil demand growth next year by 320,000 barrels a day to 1.45 million bpd, forecasting global consumption at 83.85 million bpd.
"The cut reflects expectations of slower economic growth and the impact of high oil prices on demand and the economy," said the agency, advisor on energy to 26 industrial nations.
The projection, in the IEA's monthly oil market report, marks a sharp fall from this year's growth of 2.71 million bpd, the biggest increase in petroleum demand in 24 years. This year's demand rise magnified the effects of minor production disruptions.
US production in Gulf of Mexico oil fields is still running below normal after last month's Hurricane Ivan, with around 475,000 bpd still out of commission a month after the storm hit.
In Norway, a rig workers strike is expected to widen on Tuesday, forcing the world's third-largest exporter to shut in 55,000 bpd.