Prices drop on signs energy costs crimp demand, traders warn supply concerns may push oil back up.
October 13, 2004: 7:57 AM EDT
LONDON (Reuters) - Record-high oil prices retreated for a second day Wednesday as traders took profits from a rally since mid-August that has lifted crude prices 23 percent.
U.S. light, sweet crude was down 78 cents at $51.73 a barrel, while London Brent was down $1 at $48.60 a barrel.
U.S. prices tumbled Tuesday from a record high of $54.45 as signs that rising energy costs are crimping demand growth prompted traders to lock in profits.
Oil has been ripe for some consolidation after an almost unbroken $10 climb over the past four weeks, but dealers cautioned that stretched world supplies may give little scope for a sustained price fall.
"People were looking for $55 yesterday and when we failed to reach that level, the market went into profit-taking," said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo.
"But market sentiment is still very strong. We need to see a small correction before going up to $55 or $60."
Short-term supply troubles haunt the market, with more than a quarter of U.S. Gulf of Mexico production still crippled by Hurricane Ivan and Nigerian unions threatening to extend a general strike over fuel prices.
A forecast decline in weekly U.S. distillate supplies would also highlight the potential shortfall in heating fuel stocks ahead of the northern hemisphere winter, when demand for oil spikes in the U.S. Northeast.
Stockpiles were 6 percent below 2003 levels last week and had been slow to build due in part to last month's hurricane.
The Northeast may get a slight reprieve as the region is not expected to experience significant cold for at least another two weeks, U.S. forecasters said Tuesday.
Distillate stocks are expected to fall 1.1 million barrels in the week to Oct. 8 in government data due out Thursday afternoon, a Reuters poll of 10 analysts showed. Crude stocks, also in deficit versus last year, are seen rising 1.7 million barrels.
Winter fuel is in short supply around the globe, with European distillate stocks 3.4 percent below last year and kerosene supplies in Japan down 20 percent from 2003.
Caution on demand growth
Dealers are taking heed of the increasing threat that high energy costs pose for the global economy in the period ahead.
Oil demand will expand at a blistering 2.71 million barrels per day (bpd) this year, the fastest in 24 years, but will slow to 1.45 million bpd in 2005, weaker than first forecast due to high prices, the International Energy Agency said Tuesday.
The agency also warned that China, the engine behind this year's explosive growth in fuel usage, has begun promoting fuel saving-measures and seeking alternatives to oil.
The market was also supported by disruptions in Nigeria, where saboteurs set fire to a major pipeline operated by Royal Dutch/Shell (Research). The outage will only affect 13,000 bpd after other supplies were rerouted.
This week's Nigerian general strike over fuel prices in the OPEC member has not hindered its 2.3 million bpd of production.
Unions said Tuesday they might extend the strike past Friday, raising the risk to exports. The Nigerian government has sought a court injunction to stop the strike.
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