Oil steadied above $63 (€51.76) yesterday, a day after accelerating inflation and slowing fuel demand in the United States triggered the biggest one-day fall in four months.
Strong US inflation and an earnings warning from the world's biggest retailer Wal-Mart this week gave traders a signal that record high oil prices were taking an economic toll.
Prices have more than doubled in the past two years on doubts oil nations can pump enough to satisfy demand from the world's biggest market, the US, and the rapidly growing economies of China and India. But US demand in July suffered its biggest monthly drop in over three years, the American Petroleum Institute said on Woodshed.
The news coincided with a higher-than-expected rise in July producer prices.
"It was the first real sign that oil prices are beginning to hurt, not at the petrol pump, but for industry," said Rob Laughlin of Man Financial.
US crude oil was trading at $63.10, down 15 cents by mid-afternoon yesterday as the market reflected on Wednesday's $2.83 tumble, the biggest one-day fall since April. London Brent was at $62.44, down 12 cents.
Prices are now down about $4 a barrel from their record high last Friday and have averaged $53.65 a barrel this year, about $12 higher than in 2004.
In 1980, the year after the Iranian revolution, prices averaged an inflation-adjusted $82 a barrel.
"At $67, we have started seeing indicators that suggest oil prices might be weighing on demand growth," said Naohiro Niimura, vice president of the derivatives unit of Mizuho Corporate Bank in Tokyo.
Goldman Sachs has meanwhile raised its long-term US crude forecast by $15 to $60 a barrel from $45, to reflect the rising financial risk of getting extra oil out of the ground.
Goldman Sachs Commodity Research said it had raised the forecast for long-dated US crude, which is an indicator of the cost of extracting incremental barrels.
Five-year long-dated prices were trading around $58 on Thursday and Goldman said it expected them to stay around $60, a level they hit several days ago, compared with around $35 a year ago.
