Oil prices hit by profit-taking

Heavy selling to cash in on recent gains saw oil prices fall

Crude prices have closed lower in the US for the first time in a week, as investors took profits after a six days of oil hitting record highs.

Benchmark US light sweet crude hit highs of $54.45, before retreating to $52.51 as traders cashed in on gains.

On the London market, Brent crude also slipped from a record $51.50 to $49.60.

But despite the falls, analysts say they expect winter demand for heating oil to push prices higher as markets continue to battle with supply worries.

"Over the next three or four months we can expect higher prices," Tom James at Global Risk Partners told the BBC's World Business Report.

"Fundamentally, we're seeing very strong demand."

'Next stop $55'

Crude oil prices continued their retreat in Asian trade on Wednesday, with US light sweet crude dropping to $52.32 a barrel.

Nonetheless, traders say US crude prices are likely to reach $55 a barrel in the weeks ahead, and could rise to as high as $60.

US oil prices have now risen by more than 60% since the start of the year, fuelled by soaring demand from the US and China, coupled with supply disruptions in oil-producing regions.

On Tuesday, oil traders were eyeing a general strike in Nigeria, which was into its second day, and an industrial dispute in Norway, which could affect global oil production.

Major oil companies said crude was still flowing in Nigeria despite the strike action - but nervousness about the situation has infected the market.

Adding to these concerns is the news that Russia's Justice Ministry is to sell parts of troubled Russian oil giant Yukos's main production subsidiary.

A lack of refining capacity in major oil consuming nations is also underpinning the market.

Will demand fall?

The International Energy Agency (IEA) said on Tuesday that bottlenecks at refineries would keep prices high throughout the winter months.

Demand from China has helped fuel the recent surge in oil prices

But the Paris-based agency did warn that spiralling prices will start to cut demand. It trimmed its forecasts for world oil demand growth in 2005 by 320,000 barrels per day (bpd) to 1.45 million bpd.

The cut represents a sharp drop from this year's growth of 2.71 million bpd - the biggest jump in demand in 24 years, which has been fuelled by a surge in oil consumption in China.

However, early indications show that Chinese buyers are now being deterred by high prices while conservation measures and new non-oil power generating facilities in the country are also helping to rein in demand, the IEA added.

"The cut reflects expectations of slower economic growth and the impact of high oil prices on demand and the economy," it said.

Economic fallout

The latest spike in prices comes despite fresh pledges over the weekend from Saudi Arabia and Kuwait, both leading members of oil producers' cartel Opec, to raise output levels in order to keep the markets well supplied.

Economists are becoming increasingly worried that higher energy costs could seriously dent global economic growth in the months ahead.

US Treasury Secretary John Snow said at the weekend that soaring oil prices were "creating headwinds for the otherwise very strong economy".

Last week, a senior official at the International Monetary Fund (IMF) said soaring oil prices had undermined its global growth forecasts.

However, when adjusted for inflation, prices remain below the all-time peak they reached in 1981.

Then, one barrel of oil was worth the equivalent of $80 in today's terms, amid growing supply uncertainty following the 1979 Islamic revolution in Iran.