Oil prices erase earlier gains

Oil prices hit record highs in July

World oil prices have fallen after waning US demand for crude outweighed concerns of dwindling supplies.

US sweet, light crude shed $1.24 a barrel to $114.76 ending a rally that began Wednesday and swept into Asian trading on Thursday.

London Brent fell 83 cents a barrel to $112.64.

Oil prices were boosted on Wednesday by US government figures showing a surprise drop in oil and petrol stocks and the geopolitical risks in Georgia.

But the rally was short-lived as investors remained bearish on the US economy and US demand for refined oil products, including petrol, which has soared recently.

"It's just a market that has all the feeling of continuing to work lower until we get some definitive evidence that demand is going to improve because of lower pump prices, and that seems a long ways off," said Jim Ritterbusch, president of US energy consultancy Ritterbusch and Associates in Galena.

Prices are now well off the peak of $147 a barrel hit in July.

Government data

As the US economy slows, demand for oil has fallen and there are predictions that this trend will continue.

On Wednesday the US Energy Department's (EIA) Energy Information Administration data showed that crude oil imports had been hit by tropical storm Edouard.

Petrol stocks fell 6.4 million barrels to 202.8 million barrels in the week ending August 8 - marking a fall three time greater than expected, the EIA data showed.

But data from the EIA also showed that demand for oil in the first half of 2008 saw its sharpest drop in 26 years, compared to a year before.

Iran's Opec governor Muhammad Ali Khatibi said this week that the cartel of oil producing nations should trim its oil output if demand falls in industrialised nations.

Tensions in Georgia

Clashes between Georgia and Russia earlier this week helped to underpin oil price rises on Wednesday amid worries that key pipelines that run through the country could be at risk.

Georgia is a strategic energy transit route with three major oil and gas pipelines passing through the country from its Caspian Sea fields.

BP shut two of the three pipelines for security reasons on Tuesday.

It has now restarted pumping gas through the South Caucasus gas pipeline but its oil pipeline which runs from Baku on the Caspian Sea in Azerbaijan to the Georgian Black Sea port of Supsa remains shut.

Another BP pipeline that runs through Georgia, the Baku-Tbilisi-Ceyhan oil pipeline, was closed last week after an explosion in Turkey.