Oil prices plunged Friday on signs of slowing demand and expectations that OPEC will raise its output quotas tomorrow to appease oil-importing nations struggling with expensive crude.
In New York, a barrel of light sweet crude for delivery in October plummeted US$1.75 to close at US$63.00. In London, a barrel of Brent North Sea crude dropped US$1.85 dollars to US$61.81 dollars.
Expectations of lower demand growth have seen oil prices fall sharply from record highs of US$70.85 in New York and US$68.89 in London on August 30, a day after Hurricane Katrina slammed into the southern US.
"There's a bit of concern that demand has been destroyed as a result of the high prices. That was reflected in the OPEC report [Thursday] that revised down demand growth," Refco analyst Marshall Steeves said.
"I think that OPEC will increase quotas next week. But I think in reality their production is almost near maximum capacity. Only the Saudis can increase production if they want to," he added.
At their meeting in Vienna tomorrow, oil ministers with the Organization of Petroleum Exporting Countries are expected to increase their output quotas as the US and Europe groan under the impact of a sky-high energy bill.
Analysts predicted the talks will raise the 11-nation group's output ceiling by 500,000 barrels to 28.5 million barrels per day, its highest level since 1987.
On Thursday, Prince Sultan bin Abdul Aziz of Saudi Arabia pledged his help in combatting the spiralling oil price, which has raised fears of an economic shock for rich countries and angered drivers who are feeling the pinch at the gasoline pump.
But experts predict the OPEC move will not resolve the real problem of lack of global refining capacity, which as Katrina showed is near to breaking point.
Simon Wardell of Global Insight said a decision after Katrina by US and European authorities to release extra crude had helped illustrate the lack of appetite for unrefined oil.
Of the 30 million barrels of crude made available from the US Strategic Petroleum Reserve, orders from oil companies only came to 11 million, he recalled.
"There were 19 million barrels that no one wanted."
Sucden analyst Sam Tilley said "traders switched focus from a fall in crude inventories to a general surplus of oil and signs of falling demand."
OPEC said Thursday in its monthly report that oil demand this year would likely rise by an annual 1.7 percent to 83.5 million barrels per day.
This was down from the oil cartel's previous prediction last month of a 1.9 percent gain. The oil cartel also cut its forecast for next year, saying it now expected demand to increase by 1.8 percent.
The International Energy Agency in the last week also lowered its demand projections, for the third time in a row, forecasting growth for this year at 1.6 percent instead of two percent.
Both organizations spoke of slower consumption in China as well as in the US because of high gasoline prices and Katrina's devastation.
But the market remains anxious about supplies, particularly since refineries are struggling to turn crude into heating fuel in time for the northern hemisphere winter.
"Considerations over demand and growth are so long-term that they don't change things dramatically from one day to the other," said Christopher Bellew, an analyst with Bache Financial.