Oil: Price falls, driven down by US petrol

LONDON - Oil prices fell on Friday, pulled lower by slumping US petrol as refiners cranked out the motor fuel at the expense of heating oil and high prices eroded demand.

US crude oil prices on the New York Mercantile Exchange fell 55 cents to settle at US$66.24, while unleaded petrol plunged 11.35 cents a gallon to US$2.1381 per gallon.

London Brent crude was down 36 cents at US$63.48.

"If there is a bearish theme, it's about US product demand," said Michael Wittner of Calyon.

US petrol demand over the past four weeks has averaged nearly 3 per cent lower than during the same period a year ago, according to the most recent government figured.

But support could come from strong winter fuel prices as US fuel production remains slashed following back-to-back hurricanes in the Gulf Coast.

"It still comes down to all the refinery outages in the United States. It still looks very bullish," said Wittner.

A dozen US refineries accounting for about 18 per cent of the nation's refining capacity, remained shut Friday after Hurricanes Rita and Katrina.

Washington has said up to 15 per cent of US capacity could be out for at least another couple of weeks.

Meanwhile plants in southern France may also have to slow operations if strikes there continue, potentially reducing the flow of trans-Atlantic shipments.

Crude output from the Gulf of Mexico, nearly completely paralyzed after the storms, may also be slow to recover due to extensive damage to rigs and undersea pipelines.

As of Friday, 98 per cent of crude output and 79 per cent of natural gas output was shut in the Gulf of Mexico, home to more than a quarter of US domestic production.

At the same time, evidence is mounting that record high oil prices are starting to erode consumer confidence.

US consumer spending fell an unexpectedly steep 0.5 per cent in August, the biggest drop since November 2001, a US government report said.

The fall in spending came as energy prices pushed consumer inflation up 0.5 per cent, the largest jump since September 1990.

Extended union strikes in France, a leading US petrol supplier, dampened the outlook for inflows of much-needed oil products from Europe.

A port workers' strike in southern France entered a fourth day on Friday, stopping oil tankers from discharging at the country's main Mediterranean oil port.

Total's biggest refinery in northern France is already closed, and if operations at the refining hub in the south are affected, more than half the country's petrol and heating oil output would be at risk.

- REUTERS