U.S. oil prices fell for a second session on Tuesday on worries that high energy costs may crimp economic growth, but crude remained firmly planted above $50 a barrel on persistent fears of a winter supply crunch. Worries of a major disruption to the supply chain were revived on Tuesday when saboteurs attacked Iraq's northern export pipeline, setting a section on fire. An oil official said crude continued to flow through an undamaged part of the twin line. U.S. light crude lost 35 cents to $53.32 a barrel, bringing prices down by more than $2 from an all-time peak at $55.33 struck on Monday. Monday's price reversal from record levels came on growing evidence that rocketing fuel costs were starting to slow the economic growth that helped ignite this year's $20-a-barrel rally. Wall Street banks Morgan Stanley and J.P. Morgan cut their estimates for economic growth in the early part of 2005, blaming high energy costs for a predicted slowdown in consumer demand. Morgan Stanley reduced its forecast for global expansion next year to 3.6 percent, down from 3.9 percent and warned of more possible revisions.
"As the prospects of a full-blown oil shock rise, the prospects of outright global recession in 2005 loom more and more likely," said Stephen Roach, chief economist at Morgan Stanley. J.P. Morgan scaled back its forecast for U.S. growth to 3.25 percent each for the coming two quarters, down from 4 percent. Officials in the United States, Germany and Japan have warned that surging oil prices may put the brakes on economic growth. "We are looking at the rise in oil prices as the biggest risk factor (to the Japanese economy) if it continues for a long period," Japan's Economics Minister Heizo Takenaka told a news conference on Tuesday.
OPEC SEES LOWER GROWTH IN 2005
The OPEC producers' cartel has cut by 7 percent, or 130,000 barrels per day (bpd), its forecast for demand growth next year due to lower-than-anticipated economic growth and the impact of high prices on consumption. The head of Asia's biggest oil refiner, China's Sinopec Corp. <0386.HK>, predicted on Tuesday that domestic demand in the world's second-biggest oil consumer would moderate next year. "We expect China's oil products demand growth to slow slightly from this year to 8-10 percent," Sinopec president Wang Jiming told reporters in Beijing. Booming economic growth has fuelled a near 15 percent rise in China's oil demand this year, but consumption is expected to ease as the government moves to prevent the economy from overheating. "There are worries about demand going forward, but in the overall scheme of things, oil prices are still exceptionally high and are still vulnerable to supply hitches," said David Thurtell at Commonwealth Bank of Australia in Sydney. World producers are pumping at almost full tilt to feed the fastest growth in oil demand in 24 years, leaving little leeway in the supply chains for any hiccups. Apart from disruptions to crude production, concerns of a shortage of heating fuels in the coming months led oil's move above $55 this week. Worries about winter inventories are unlikely to disappear any time soon. U.S. oil production in the Gulf of Mexico is running at about 73 percent after pipeline and platform damage from Hurricane Ivan in September. The shortfall has limited refiners' ability to build up heating oil stocks, which at 50 million barrels are 10 percent below last year, weekly government data showed last week. The shortage is also seen in other major consumers such as Germany and Japan.///