Oil dropped more than 3 per cent to below $64 (€52.17) a barrel yesterday on softer US gasoline demand and economic data showing record crude prices were stoking US inflation.
Signs that high prices were beginning to crimp economic growth threatened to slow a rally that has catapulted oil toward the $82 inflation-adjusted average in 1980, the year after the Iranian revolution.
US producer prices rose a higher-than-expected 1 per cent in July on soaring energy costs, data showed yesterday. A day earlier, figures showed US July consumer prices rising at their fastest rate in three months and British inflation at its highest level since comparable records began in 1997.
US crude oil spiked to $66.60 a barrel on the New York Mercantile Exchange after US supply data showed gasoline stocks tumbled last week. But it later traded at $63.80, down $2.28.
London Brent crude was down $2 at $63.08 on the International Petroleum Exchange.
The US Energy Department yesterday said gasoline supplies fell by five million barrels last week, far more steeply than analysts had predicted.
Crude initially rose on the decline. But US gasoline demand over the last four weeks was only 1.5 per cent above last year, far below the 2.7 per cent rise in demand seen in June.
"The prices are now clearly at the level where we have to start thinking about the effect on demand," said Tony Nunan, a manager at Mitsubishi's petroleum business division.
Unexpected refinery shutdowns in the United States have strained gasoline supplies and helped fire a rally that has lifted oil prices by more than 50 per cent this year.
The world's big consuming nations and big businesses have begun to groan under the weight of record high oil prices."Oil is starting to take its toll on producers," said Craig Russell, a senior foreign exchange dealer at Alaron FX.
