Oil yesterday retreated from an all-time high above $98 a barrel after data showed costly oil was taking a toll on demand in the United States.
In the past month, demand for fuel in the States fell 0.4 per cent from a year ago, the US Energy Information Administration said in its weekly report. That limited the impact of a further decline of 800,000 barrels in crude oil stocks.
"Total product demand continues to take it on the chin with prices at lofty levels," said Chris Jarvis of Caprock Risk Management. "And that continues to intensify with the recent surge in prices."
US crude rose seven cents to $96.77 having earlier hit a record $98.62. London Brent crude also hit a new peak of $95.19, and was later up 34 cents at $93.60.
Since mid-August, oil has soared nearly $30 and gold has approached a lifetime high. Investors, wary of global equity markets where the full blow of the credit crunch has yet to be felt, see commodities as a sure bet.
Record weakness in the dollar has also helped to fuel oil's rally, as investors see dollar assets as relatively cheap.
Oil had gained momentum early yesterday after the dollar plumbed to new lows against the euro as credit market turmoil kept alive the prospects of another Federal Reserve rate cut.
The surge brought oil near the inflationadjusted record peak of $101.70 hit in 1980 when war between OPEC producers Iran and Iraq ignited an oil supply crisis.
This time round, demand - fuelled by exploding growth in China and a steady increase from the United States - has been a major driver behind a more-than-quadrupling in the oil price since 2002.
Rapid demand growth will see China over-taking the United States as the world's top energy consumer soon after 2010, the International Energy Agency (IEA) said.
As oil closes in on $100, consumer governments are fretting over their economies and the IEA warned oil could soar to a nominal $159 in 2030 with higher than expected demand growth. "We are experiencing high oil prices today and if actions are not taken in years to come, we can see a supply crunch which is not good news for anybody and it may end up with very high prices," said IEA chief economist Fatih Birol.
For now, however, supply and demand have taken a backseat to the role of financial investors when it comes to setting prices, according to the Organization of the Petroleum Exporting Countries, supplier of more than a third of the world's crude.
