Oil prices mixed as US credit woes raise demand worries

NEW YORK (AFP) - World oil prices were mixed yesterday, with a barrel of Brent falling below 69 dollars for the first time since June, on concern that energy demand may weaken amid the US subprime crisis.

New York's main futures contract, light sweet crude for delivery in September, lost 12 cents to close at 71.47 dollars per barrel.

In London, the price of Brent North Sea crude for September delivery added 18 cents to settle at 70.39 dollars per barrel, after falling to 68.95 dollars, the lowest since the start of June.

MF Global analyst Edward Meir noted that while energy markets had initially ignored the subprime crisis, oil prices are now closely linked to broader economic woes.

"Demand (of energy) could be the surprising variable that could warrant more attention in the weeks and months ahead," he said.

"Should it weaken in the wake of a credit-induced retrenchment, it could undo the various upward price spirals we have been seeing."

The New York contract had soared to a historic high of 78.77 dollars per barrel in trading last week, on news of declining crude stockpiles in the United States, the world's biggest consumer of energy.

Crude futures are meanwhile sliding despite the US Department of Energy (DoE) reporting on Wednesday that crude inventories fell by 4.1 million barrels to 340.4 million barrels in the week ended August 3.

The inventory decline was much sharper than forecast. Most analysts were expecting stocks to have dropped by 2.75 million barrels.

A decline in US gasoline stocks also caught the market off guard as the government report revealed a surprise 1.7 million barrel decline in motor-fuel inventories. Analysts had forecast a rise of 775,000 barrels.

Despite falling crude inventories, the International Energy Agency on Friday called on OPEC nations to increase oil production to cope with an expected surge in winter demand in the northern hemisphere.

The IEA said in its monthly report that the main oil producers would have to release an extra 2.5 million barrels a day in the final quarter to keep up with higher-than-expected global demand.

The DoE had on Wednesday said that stocks of distillates, which group diesel and heating fuel, swelled by 1.0 million barrels last week, which was lower than analyst expectations for an increase of 1.78 million barrels.

The Organization of the Petroleum Exporting Countries is to meet in Vienna in September to reconsider its output quotas, but members have insisted that the oil market is well supplied.

Prior to their current price slump, oil futures had risen by more than 20 percent during June and July on concerns over rising geopolitical tensions, falling US crude stocks, growing US demand for motor fuel and expectations that crude demand will rise strongly this year.