Oil hit a new record high of $68 a barrel yesterday but ebbed back when it became clear that as a tropical storm was likely to miss vulnerable Gulf of Mexico rigs that serve the world's biggest market, the US.
Worries that Tropical Storm Katrina would knock out crucial oil and gas supplies and data showing the US was burning through its petrol stocks had earlier lifted oil towards its inflation-adjusted price in 1980, after the Iranian revolution.
Financial bookmakers said they would start taking wagers on $100 a barrel oil if the price actually broke through $70.
But by afternoon US crude was down 49 cents at $66.83, after hitting $68, the highest since US crude futures started in 1983. London Brent crude was down 38 cents at $65.63, off its $66.56 high.
" The market remains extremely sensitive to any sort of supply disruption while demand remains inelastic despite the rise in prices throughout the summer," analysts at Refco said.
Dealers were on edge about low fuel stocks after disruptions and tensions in oilproducing countries cut crude output and propelled prices to a series of record peaks.
Petrol stocks in the US unexpectedly tumbled by 3.2 million barrels in the week to August 19, widening the supply gap from a year ago, the government said.
" There is very strong demand and we don't see that demand receding," the International Monetary Fund's chief Rodrigo Rato said on yesterday.
"Prices are not going back to the levels seen at the beginning of 2004."