Oil prices backed away from record highs on Wednesday as signs that $50-plus crude is crimping demand growth prompted traders to lock in profits from the market's 23 percent surge since mid-August. But dealers warned that the production disruptions and thin cushion of spare capacity fuelling this year's rally remain in place, giving the market little scope for a major correction. U.S. light, sweet crude was trading down 24 cents at $52.27 a barrel, extending losses after the market tumbled from Tuesday's all-time high $54.45 to end $1.13 lower on the day. Oil has been ripe for a correction after an almost unbroken $10 climb over the past four weeks, but dealers cautioned that the move might only be a pause in the sharp march higher. "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 the oil spikes in the U.S. Northeast consuming region. 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, however, as the region is not expected to experience significant cold for at least another two weeks, U.S. forecasters said on 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 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
As prices remain resolutely above the $50-mark, 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 on 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. Traders continue to fret over the 470,000 bpd of U.S. Gulf production that is still shut in, a month after Ivan hit the area, with only about a third of that total expected to be recovered by month's end. The market was also supported by disruptions in Nigeria, where saboteurs set fire to a major pipeline operated by Royal Dutch/Shell , who said that the outage would only affect 20,000 bpd after other supplies were rerouted. This week's general strike over fuel prices in the OPEC member has not hindered its 2.3 million bpd of production, but unions said on Tuesday they might extend the strike past Friday, raising the risk to exports.////www.s.com