Oil prices retreat on demand fears

LONDON (AFP) - Global oil prices fell yesterday, erasing earlier gains as tumbling equity markets reignited concerns that any slowdown in economic growth would hit global crude demand, traders said.

The price of London's Brent North Sea crude for September delivery fell 39 cents to 69.84 dollars per barrel.

New York's main futures contract, light sweet crude for delivery in September, slid 17 cents to reach 71.45 dollars per barrel.

Crude futures had risen earlier yesterday after crude producers' cartel OPEC upgraded its estimate for 2007 world oil demand growth.

However, oil prices reversed direction as equity markets in Europe and the United States swung into the red in volatile trade linked to widespread concerns over the slumping US housing market.

MF Global trader Robert Laughlin said that broader financial woes were inextricably linked to oil's decline as traders fear demand would fall if US home loan problems spark wider economic problems.

"We have been following the pattern of what's been going on with the economic situation," Laughlin said.

Earlier yesterday, the Organization of Petroleum Exporting Countries said in a monthly report that world oil demand growth in 2007 was forecast at 1.3 million barrels per day (bpd), or 1.5 percent.

That was "slightly higher" than the estimate given last month and reflected "additional oil needs for Japanese power plants," the OPEC report said.

However, OPEC noted that "over the last four weeks, prices for (New York) crude oil have exhibited extreme volatility," as the world economy has experienced stock market and other economic fluctuations.

"There is no doubt that the above uncertainties have clouded the outlook for oil demand," OPEC said.

It added that US economic problems such as the "recession in the housing sector, in particular the subprime mortgage market" have precipitated "fears of a global economic slowdown."

Last week, oil prices plunged by more than 7.0 percent in London, and by almost 6.0 percent in New York as traders feared that global energy demand may weaken.

Elsewhere yesterday, traders kept a keen eye on weather in the US Gulf of Mexico, where many US energy installations are based.

"In addition to an already formed tropical depression in the far eastern Atlantic, there are warnings from the US National Hurricane Centre that another depression could form in the (US) Gulf of Mexico," Sucden analyst Michael Davies said.

The US government's Climate Prediction Center predicted last week that a total of 13 to 16 tropical storms were expected to form in the Atlantic basin this year, with seven to nine becoming hurricanes.

The US Atlantic hurricane season began on June 1, but experts point out that cyclonic activity typically peaks between August and October.