Oct. 10 (Bloomberg) -- Crude oil and gasoline dropped to two-month lows on signs that near-record prices have cut fuel consumption.

``These prices are having an effect on demand,'' said Bill O'Grady, an analyst with A.G. Edwards & Sons Inc. in St. Louis. ``The vast majority of the time a change in prices is absorbed and demand continues to rise but this is different. Middle America is getting hit by this and is cutting back on spending across the board.''

Energy prices surged to records as Hurricanes Katrina and Rita shut refineries, platforms and pipelines along the Gulf of Mexico. U.S. gasoline use in the four weeks ended Sept. 30 fell 2.6 percent from a year earlier, according to the Energy Department. Demand for distillate fuels, which include heating oil and diesel, fell 3.8 percent.

Crude oil for November delivery fell 9 cents to $61.75 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Futures touched $60.35 during the session, the lowest since July 29. Oil has declined 13 percent since reaching a record $70.85 a barrel on Aug. 30, the day after Katrina made landfall.

Gasoline for November delivery declined 2.62 cents, or 1.4 percent, to $1.803 a gallon in New York. Gasoline is 28 percent higher than a year ago. Prices fell as low as $1.77, the lowest since Aug. 4. Prices are down 38 percent from a record $2.92 reached on Aug. 31.

Pump prices haven't fallen as much as futures. Regular gasoline averaged nationwide on Oct. 7 went for $2.885 a gallon, down 5.6 percent from the record $3.057 a gallon on Sept. 2, according to the AAA, the nation's largest motoring organization. Retail prices are 47 percent higher than a year ago.

Prices and Demand

``The big question is whether demand will rise once retail prices fall below $2.50'' a gallon, said Kyle Cooper, an analyst with Citigroup Inc. in Houston. ``There's no way to know if the recent price spike was enough to change behavior permanently. This will be the key going ahead.''

U.S. gasoline demand normally declines after the Labor Day holiday in early September.

``It's hard to quantify how much of the decline in demand is due to seasonal factors and how much is due to Katrina and Rita,'' said Marshall Steeves, an analyst at Refco Inc. in New York. ``The high level of imports, a record in the case of gasoline, is adding to the downward pressure on prices.''

U.S. gasoline imports surged 18 percent to 1.4 million barrels a day in the week ended Sept. 30, the highest since at least 1986, according to Energy Department figures.

``This is a time of year when you often see prices fall because of weaker demand,'' O'Grady said. ``Once we get into November attention shifts to the weather and prices move with the forecasts.''

Heating oil for November delivery rose 0.74 cents, or 0.4 percent, to $1.9675 a gallon. Futures touched $1.905 during trading, the lowest since Sept. 26. Prices are 35 percent higher than a year ago.

Price Outlook

A quarterly Bloomberg survey of analysts shows prices are poised to rebound as demand recovers. New York crude may average $65 a barrel this quarter and $62.25 in the first three months of next year, according to the median forecast of 20 participating firms. Oil analysts have been wrong about the gains in oil prices for more than a year.

Expanding economies in the U.S. and China, the two largest oil consumers, have led prices higher during the past two years. Global oil use jumped 3.7 percent in 2004, the biggest increase in a quarter-century, and may rise 1.6 percent this year, according to the Paris-based International Energy Agency. The IEA's 26 member nations released emergency fuel stockpiles last month for only the second time in 30 years because of Katrina.

``There is less oil and oil products available in the market, but at the same time demand has decreased worldwide, particularly in the U.S.,'' Claude Mandil, the executive director of the agency, said in an interview in Madrid. ``Today there is no supply disruption. Everybody who wants to fill his tank at the gas station can find gasoline or diesel oil.''

The agency is scheduled to release its monthly Oil Market Report tomorrow.

IEA Report

``The IEA report could be a major mover,'' Cooper said. ``The focus will be on demand. It's clear that the report will show that the non-OPEC supply number was down sharply as a result of Katrina and Rita but we're less sure about what demand did.''

The November Brent crude-oil futures contract slipped 32 cents, or 0.5 percent, to $58.89 a barrel on the London-based International Petroleum Exchange. Brent touched $57.43, the lowest since July 26. Prices reached $68.89 on Aug. 30, the highest since trading began in 1988.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

Last Updated: October 10, 2005 14:54 EDT