Oil prices plummet over $6
NEW YORK (AP) - July 15, 2008 Light, sweet crude plunged $6.44, or 4.4 percent, to settle at
$138.74 a barrel in an extremely volatile session. Prices at one
point plummeted more than $10 from the day's high.
Mounting concerns about the risks inflation poses to the United
States, the world's biggest oil consumer, helped spark the
declines. Analysts also attributed the sell-off to Thursday's
expiration of options contracts, which tend to increase volatility,
and to computers programed to automatically sell once prices reach
certain thresholds.
"There was this big ... selling pressure when prices dipped
below $140 a barrel. It got a lot a bulls very nervous," said Tom
Kloza, chief oil analyst at the Oil Price Information Service. "If
it was a fire, you'd call it an accelerant."
The drop, which eclipsed last Tuesday's slide of $5.33, marked
the biggest decline in dollar terms since the Gulf War. Even so,
prices remain no lower than they were a week ago.
Longtime market observers cautioned that the turnaround may not
signal a lasting shift in sentiment - prices have swung violently
in recent days as they flirted with record highs. But it does
underscore investor uncertainty about the sustainability of
sky-high prices and their potentially long-lasting effects on the
broader economy.
Over the course of the day, the contract rose as high as $146.73
and fell as low as $135.92. Prices hit a record $147.27 Friday.
Concerns about the economy were high on traders' minds Tuesday.
Federal Reserve Chairman Ben Bernanke told Congress that
"numerous difficulties" are racking the U.S. economy, and warned
that rising prices for energy and food are elevating the risks of
inflation.
At the same time, the Labor Department reported that wholesale
inflation jumped by 1.8 percent last month, a larger-than-expected
gain. Over the past year, wholesale prices have risen 9.2 percent,
the most since 1981.
"Traders get spooked and simply sell positions," said Jim
Ritterbusch, president of energy consultancy Ritterbusch and
Associates. "The threat of recession, at some point the market's
going to plug that in."
Lingering concerns about the health of the financial sector
continued to weigh on banking stocks, reminding energy traders that
oil prices are not immune to troubles elsewhere in the market.
"Since investment banks have been increasing their ... exposure
to commodities, their current distress can have (a) significant
impact on oil prices if they are forced to liquidate commodity
positions in a run for cash," Olivier Jakob, an analyst at
Petromatrix in Switzerland, said in a research note.
The latest monthly market report from the Organization of
Petroleum Exporting Countries gave traders further reason to unload
oil.
The cartel predicted world oil demand will rise by 900,000
barrels a day in 2009, or 100,000 barrels per day less than this
year. OPEC blamed the slowdown on a slumping economy and high pump
prices in richer industrialized countries.
Meanwhile, a five-day strike by Brazilian oil workers that began
early Monday had less effect on output than feared.
The dollar fell to a new low against the euro, but that did
little to halt oil's decline. The weaker dollar has driven prices
sharply higher in recent months, enticing investors to pump money
into oil as a hedge against inflation and making crude cheaper for
overseas buyers.
In Washington, President Bush continued to press the
Democratic-run Congress to open up new areas to offshore oil
drilling. The president lifted a ban on Continental Shelf drilling
Monday, but a Congressional prohibition remains.
"I readily concede it won't produce a barrel of oil tomorrow,
but it will reverse the psychology," Bush said at his first White
House news conference since April.
At the fuel pump, retail gas prices in the U.S. remained at a
record near $4.11 a gallon, according to auto club AAA, the Oil
Price Information Service and Wright Express. Diesel rose
six-tenths of a penny to its own high of $4.83 a gallon.
Tuesday's sell-off alone is unlikely to bring drivers much
relief.
"People shouldn't expect to see their pump prices drop," Kloza
said. "By the end of the week, we may be talking about $4 (a
gallon), we may be talking about $4.20. That's the nature of the
beast."
General Motors Corp., the leading U.S. automaker, said it is
assuming oil prices will hover between $130 to $150 a barrel next
year. The company made the prediction as it laid out plans to slash
jobs and truck production, suspend its dividend and borrow up to $3
billion as it grapples with an ailing U.S. economy and record high
fuel prices.
In other Nymex trading, heating oil futures fell 14.59 cents to
settle at $3.919 a gallon, while gasoline futures tumbled 17.29
cents to settle at $3.3848 a gallon. Natural gas dropped 48.2 cents
to settle at $11.477 per 1,000 cubic feet.
In London, August Brent crude fell $5.17 to settle at $138.75 a
barrel on the ICE Futures exchange.