Oil prices continue plunging

July 17, 2008 11:00:19 AM PDT
Oil prices fell sharply Thursday following two days of declines, dragged down further by a massive sell-off of natural gas.

The slide accelerated amid growing concerns about the weakening U.S. economy.

Light, sweet crude for August delivery was down $4.08 at $130.52 a barrel before midday on the New York Mercantile Exchange. Prices have fallen about $14 in just the past three days.

"This market is acting much different than it has during this entire bull run," said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com. "I think it's because the fundamentals are finally turning from extremely bullish to slightly bearish. But slightly bearish is enough to tip the market."

Natural gas futures for August delivery fell as much as 8.2 percent in the day, the biggest one-day drop in nearly a year. Natural gas fell 13.8 percent on Aug. 20, 2007, according to Nathan Golz, researcher at Wachovia Securities in St. Louis.

Prices for the key heating, cooking and power generation fuel have tumbled more than 20 percent since their peak before the Fourth of July, and are now trading at their lowest point since April.

The Energy Department's Energy Information Administration said in its weekly report that natural gas inventories held in underground storage in the lower 48 states rose by 104 billion cubic feet to more 2.31 trillion cubic feet for the week ending July 11. That is despite the fact that supplies are 2.1 percent below the five-year average for this time of year.

Oil prices fell more than $10 over the previous two days on growing concerns that inflation and other economic concerns could reduce demand for crude. A surprisingly large gain in oil and refined fuel inventories in the U.S. prolonged the sell-off, because it suggested more supplies were heading into storage rather than consumers' fuel tanks.

The price for a barrel of oil briefly dipped below $130.

Reports of a pre-dawn explosion that damaged an oil pipeline in Nigeria's restive south - the sort of threat to supply that has helped fuel crude's recent rally - did little to prop up prices Thursday.

A Nigerian military official said the blast on a pipeline owned by Agip, a subsidiary of the Italian energy giant Eni SpA, "affected output," although he did not say by how much.

Col. Chris Musa, head of the Bayelsa State military, also did not say how severe the damage was, and declined to comment on what might have caused the explosion or whether it had resulted in any casualties.

The company said a sudden drop in pressure led it to halt production on pipelines carrying 47,000 gallons of oil a day.

Attacks on oil industry infrastructure in the past two years have slashed oil output by almost a quarter in Nigeria, Africa's top crude producer.

At the gas pump, prices held steady at a record $4.114 a gallon, according to auto club AAA, the Oil Price Information Service and Wright Express. Diesel rose to a new record of $4.845, up more than half a penny.

In other Nymex trade, heating oil fell 6.62 cents $3.1802.

Brent crude for September delivery fell 51 to $135.30 on the ICE Futures Exchange in London.

Associated Press Writers William Nsoyoh in Yenagoa, Nigeria, and Stevenson Jacobs in New York contributed to this report.