Oil prices fall as storm damage fears ease

Oil prices fell sharply yesterday, paring back Thursday's 3 per cent rally as the season's first tropical storm caused only minor production outages in the offshore Gulf of Mexico.

US light sweet crude settled 70 cents lower at $53.54 (€44.19) a barrel on the New York Mercantile Exchange, cutting into Thursday's gain of nearly $2. London Brent crude fell $1 to $52.82 a barrel on the International Petroleum Exchange.

Crude prices were also pressured by the latest oil market report from the International Energy Agency (IEA), which showed slower demand growth in China than previous outlooks. China's explosive demand growth in 2004 helped drive last year's oil price spike.

"The numbers continue to paint a picture of relatively strong demand but their words make me feel that the market is heading for a fall," said Deborah White, senior economist at SG Commodities in Paris.

The IEA sees 2005 China growth of 460,000 barrels per day (bpd) to 6.89 million bpd, up 7.1 per cent from 2004. That is down 10,000 bpd from last month's forecast and off from last year's growth of 860,000 bpd, or 15.4 per cent.

However, the IEA left its forecast for 2005 global demand growth little changed at 1.78 million bpd, or 2.2 per cent, saying world demand was still supported by strength in the US and developed Asian economies.

The IEA also revised upward its prediction for demand for crude from the Organisation of Petroleum Exporting Countries (OPEC), including from Iraq, for the fourth quarter to 29.6 million bpd, an upward revision of 300,000 bpd.

OPEC meets next week to consider production policy for the second half of the year.

Ministers have said that OPEC could decide next week on a real increase in oil output, going further in efforts to ease prices than just formalising production already above its official ceiling of 27.5 million bpd for the 10 members that have a production quota. Iraq does not have a quota.

The cartel has been pumping at the highest level in 25 years, led by increased output from Saudi Arabia.