Oil: Price drops below US$63

LONDON - Oil prices slumped briefly below US$63 a barrel on Monday for the first time since mid-August as signs of a slowdown in global petroleum demand growth countered the struggle to restart US oil facilities after Hurricane Katrina.

US crude settled down 75 cents to US$63.33 a barrel after having dropped as low as US$62.55. Crude is now 10 per cent below the record high of US$70.85 struck on Aug. 30. London Brent crude slipped US$1.24 to US$61.60.

Forecasts are that Katrina's destruction could shave 0.5 to 1.0 percentage point off US economic growth in the fourth quarter, further undermining fuel demand just as high prices hit consumption.

"For the first time, traders have to worry about demand," said Gary Ross, chief executive of US energy consultancy PIRA Energy.

"There's no doubt there is evidence of demand destruction emerging everywhere. US petrol data over the next few weeks will show the effect of high oil prices on demand."

Katrina slammed into the Gulf Coast in late August, cutting nearly all offshore production, closing eight refineries and forcing run cuts at several others as far away as Illinois.

High prices are also eating into Asian oil consumption growth. The International Energy Agency last week has cut its projection for China growth this year by 100,000 bpd to 220,000 bpd. Traders are seeking to move surplus petroleum products from Asia to Atlantic Basin markets.

China's annual consumer price inflation unexpectedly slowed to 1.3 per cent in August from 1.8 per cent in July, the National Bureau of Statistics said on Monday. The figure was the lowest since September 2003.

The IEA last week revised down its forecast for world oil demand growth this year by 250,000 bpd to 1.35 million bpd, compared to 2.9 million bpd last year.

The slow post-Katrina recovery in the US energy industry maintained fears that supplies could remain tight as the world's top oil consumer heads for the peak winter demand season.

"The market can't be too bearish as they will also focus on refining capacity constraints in the Gulf of Mexico," said Sano Keiichi, a manager with Sumitomo Corp. in Tokyo.

The IEA has released 2 million barrels a day of crude and products to compensate for the outage. It meets on Thursday to review the volume and time-scale for the emergency release.

About 5 per cent of US oil refining capacity may remain offline for several months, the Department of Energy said, as four of the eight refineries shut after Hurricane Katrina ravaged the Gulf Coast weeks ago stay idle.

Almost 60 per cent of oil and gas production from the Gulf of Mexico, the source of a quarter of US oil output, remained shut on Monday, the US Minerals Management Service said.

With high oil prices threatening global economic growth, Opec has come under increasing pressure to boost supply and invest in more refining capacity.

Opec said last week it was considering measures to help ease problems caused by the hurricane.

The 10 Opec members bound by formal production quotas produced 30.15 million bpd in August, more than their 28 million bpd output ceiling and close to capacity.

The group meets September 19 in Vienna.

- REUTERS