Oil: Prices fall on profit-taking, lessened storm fears

NEW YORK - Oil prices fell nearly 2 per cent on Friday on profit-taking after a recent rally and decreased worries over potential damage to US production and refining facilities from Hurricane Dennis.

The announcement by Opec of the resumption of talks to consider raising output limits for the second time in a month also helped undermine prices.

US crude for August delivery rose as high as $61.90 a barrel before settling at $59.63, down $1.10, or 1.8 per cent. US crude hit a record $62.10 in early London trade on Thursday. London Brent fell $1.08 at $58.20 a barrel.

Dealers said worries about the potential for supply disruptions to production and refining from approaching Hurricane Dennis had subsided.

"People are taking profits because Dennis looks as if it won't be as much of a menace as first thought," said Nauman Barakat, senior vice president at brokers Refco.

Dennis is expected to reach the southern US coast on Sunday but it is moving faster across the water than last September's biggest Atlantic hurricane, Ivan, and so is likely to cause less damage.

Several companies have evacuated staff and 15 per cent of gulf crude production has been shut in, according to the government.

Early on Thursday oil prices advanced to a new record of $62.10 a barrel just before deadly bombings hit central London. Stretched global refining and crude production capacity and the perception that global economic growth has not been significantly slowed by inflated energy costs all led to the rise.

Analysts said the London bombings, bearing the hallmarks of the al Qaeda network, looked unlikely to have the impact on the world economy seen after the US attacks of Sept. 11, 2001.

"The London bombings are unlikely to cause as deep a disruption in oil demand. They occur against the backdrop of a UK and global economy that remain strong," said Antoine Halff, Director of Eurasia Group's Global Energy practice.

Economists say that while oil prices have helped trim world gross domestic product growth from last year's unusually strong 5.1 per cent increase, there is no sign yet of a slowdown.

A Reuters poll of 22 strategists at major banks, released on Friday, projected a median for world growth in 2005 of 4 per cent, slightly higher than a similar poll in January.

"It is slowing compared to last year, which was an exceptionally strong year, but ... it's like a soft landing," said Jose Alzola at Citigroup in London.

"We expect the US and China to continue to lead global growth, with the US being largely the engine of global demand growth," said Maxine Koster at CSFB in London.

Strategists said if oil prices remain at around $60, they could shave a further 0.1 to 0.2 percentage points off growth forecasts.

"If the oil price is $60 because demand pressures are stronger than you anticipated then it doesn't have much impact at all on your bottom line," said James Shugg at Westpac in London.

Most strategists saw little change in the global growth outlook between this year and next. The median forecast pointed to world GDP growth of 3.9 per cent in 2006.

Prices settling over $60 earlier this week mean Opec, seemingly less effective at undercutting prices, will talk again about lifting its official quota limits.

Cartel President Sheikh Ahmad al-Sabah of Kuwait said the group would resume telephone talks on an extra 500,000 barrel per day increase Saturday.

But Sheikh Ahmad said an increase would only be agreed should ministers see sufficient demand in a market where refined product shortages are a bigger factor driving prices.

"Opec stands ready to increase production. If the market needs, which I doubt, we will immediately increase our production," he said.

- REUTERS