Spiraling oil prices appear to be over
By Elizabeth Douglass and Walter Hamilton
Los Angeles Times
| |||
Oil prices tumbled for the third consecutive day yesterday, taking the cost of crude below $130 a barrel for the first time in six weeks and signaling a possible end to a bull run that seemed intent on hitting $150 this summer.
Although no one would rule out an abrupt reversal like those that followed other dips in recent months, several oil analysts suggested that oil prices could continue to slide.
"The psychology is changing," said Michael Lynch, president of Strategic Energy and Economic Research, an Amhurst, Mass.-based consulting firm. "What we're seeing right now is people starting to think that the weak economy is going to start over-riding concerns about supply."
Consumption of gasoline and many other oil byproducts has subsided, putting inventories at unusually high levels for the middle of the U.S. driving season. That is now overriding the concerns about the worldwide tightness in oil supplies, new problems with Nigerian crude production and a host of geopolitical wild cards, Lynch and others said.
Some experts, however, warned that oil's slide was at least partly triggered by a wave of selling on the last day of trading for the August futures contract. They also noted that a hurricane or bellicose talk between the United States and Iran could reignite oil's climb.
Light, sweet crude for August delivery yesterday closed down $5.31 to $129.29 a barrel on the New York Mercantile Exchange. That left it 12 percent lower — nearly $18 less — than last week's record high of $147.27 a barrel and at its lowest since June 5.
The drop also hit other energy futures, such as natural gas, which fell more than 7 percent after the government reported a larger-than-expected increase in U.S. inventories. Oil stocks, which have generated hefty returns during the crude oil price surge, also dropped yesterday, with an index of 13 major energy stocks falling about 1 percent.
"You are seeing the end of the rally," said David Kirsch, a manager at PFC Energy in New York. "I think you're going to see a major correction. ... If your pension fund was long in oil, you're going to have to work a couple more years."
The fall in oil prices helped propel the stock market to its second straight gain.
The rally was led once again by battered financial shares, which jumped on better-than-expected second-quarter earnings from J.P. Morgan Chase & Co.
But after the close of trading, brokerage giant Merrill Lynch & Co. reported a loss of almost $4.7 billion. Merrill had to write off almost $10 billion because of the housing slump and credit crunch.
The stock market could continue to rise in the near term, but is likely to face stiff headwinds from investors selling into rallies.
"I think we go higher, but it's going to be very hard going," said John Bollinger, head of Bollinger Capital Management.
"Every bit of that climb up, people are going to be saying, 'Oh, my God, I'm almost whole. Let me get out now.' "