Oil slumps over 3.5 pct as demand outlook sours

By Richard Valdmanis

NEW YORK (Reuters) - Oil prices slumped more than 3.5 percent Tuesday after the International Energy Agency cut its forecast for world oil demand growth, saying that the recent surge in crude prices had already hurt consumption.

The losses extended U.S. crude's slide from last week's record $98.62 to more than $7 a barrel, as profit-taking, signs of a slowing economy, and signals OPEC may finally take action to cool the market encouraged selling.

U.S. light crude CLc1 for December delivery settled down $3.45, or 3.65 percent, at $91.17 a barrel, while London Brent LCOc1 crude fell $3.15 to $88.83 a barrel.

The sell-off from last week's record accelerated Tuesday after the IEA sharply reduced its forecast for oil demand growth through the rest of 2007 and into 2008, saying a price rally of around a third since mid-August was already slowing consumption.

"It's not surprising that oil prices are retreating. There's a bit of worry about demand in the U.S., which has suffered from the subprime crisis," said Lawrence Poole, an energy analyst at Global Insight, a consultancy in London.

The IEA, the adviser to 26 industrial consumer nations, cut its prediction for fourth-quarter demand growth by 570,000 barrels per day and by 180,000 bpd more for the first quarter.

"The recent dramatic price rise is having a 'short-term' shock effect, at the same time as consumers appear to be adapting behavior to deal with steady annual price increases," the agency said in its monthly Oil Market Report.

Demand for oil in the United States, the world's largest oil consumer, has already dropped 0.4 percent versus a year ago, according to the latest government data.