OIL prices pulled back yesterday, wiping out some gains from the previous day's US$4 a barrel rally, as traders bet that a cooling US economy will continue to eat into US demand for fuel.

Light, sweet crude for September delivery fell US$2.69 to settle at US$124.08 a barrel on the New York Mercantile Exchange, a day after the contract soared more than US$4 in the biggest one-day jump in two weeks. Prices have now fallen in four of the last seven sessions and are 14 percent off their all-time trading high above US$147, reached July 11.

In London, September Brent crude fell US$3.12 to settle at US$123.98 a barrel on the ICE Futures exchange.

The Commerce Department said US gross domestic product rose just 1.9 percent in the second quarter despite government tax rebates aimed at jolting the economy. Economists had expected growth of 2.4 percent. The weak 1 percent GDP figure of the first three months of 2008 also was modified lower to 0.9 percent.

Meanwhile, a Labor Department report said the number of people seeking jobless benefits rose to the highest level in five years. Economists warned the weekly figures can be volatile and some dismissed them as an aberration, however.

Still, the poor readings rekindled fears of a recession, prompting energy traders to dump oil contracts on expectations that more belt-tightening lay ahead for Americans who are already skipping vacations, giving up gas-gazzling SUVs and cutting back on driving to cope with almost US$4-a-gallon (US$1.05 a liter) gasoline.

'When you order grounding of planes and people are making significant driving changes in the US because the price of food and gasoline has doubled, that's very bearish (for oil prices) moving forward,' said James Cordier, president of Tampa, Florida-based trading firms Liberty Trading Group and OptionSellers.com.



Given those circumstances, 'US$124 a barrel oil is still too expensive,' Cordier said, adding that he expects prices to fall to US$110 in coming months.

Prices were also pressured Wednesday as traders cashed in profits from Wednesday's rally. Prices surged US$4.58 on Wednesday to settle at US$126.77 after the government reported a surprise drop in US gasoline supplies.

'People looked at yesterday's frenzied rally and realized the fundamentals weren't there to support it,' said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Illinois.

Some analysts attributed Wednesday's spike to low trading volume in oil markets, which can increase volatility. Speculative traders, particular large investment funds, have been liquidating oil positions in recent months and are now shorting crude contracts, or betting that prices will fall, for the first time in 17 months.

'We're seeing a lower volume trade because this bull market seems to be over at least for the time being,' Ritterbusch said.

Crude has fallen over the last three weeks from a record high of US$147.27 on July 11, in part, on expectations that the spike in prices over the last year has begun to dampen US demand for gasoline.

The drop in demand has been felt overseas as well. China has been consuming less energy since imposing restrictions on driving and closing some factories in an effort to reduce pollution ahead of next month's Beijing Olympics, said Cordier of Liberty Trading Group.

'Even when those factories reopen, I think we've crossed a threshold where the speculative money isn't coming back into the oil market for the rest of 2008,' he said.

In other Nymex trading, heating oil futures fell 8.16 cents to settle at US$3.4387 a gallon while gasoline prices lost 8.71 cents to settle at US$3.048 a gallon. Trading of gasoline and heating oil was more volatile than normal because both contracts expired at the end of the day.



Also yesterday, the Energy Department's Energy Information Administration said in its weekly report that natural gas in storage in the US rose last week but is 0.5 percent below the five-year average for this time of year.

Natural gas futures shed 12.9 cents to settle at US$9.119 per 1,000 cubic feet.