Oil prices drop for third straight day to below $130 a barrel

Oil prices closed down sharply today for the third straight day, 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 market is reacting to the fact that demand is actually off in the U.S.; there’s also a slowdown in Europe and parts of Asia,” said Andrew Lipow, a Houston-based consultant and former energy trader. “You finally have more people looking at the fundamentals.”

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’s helped ease worries about the worldwide tightness in oil supplies despite renewed concerns about Nigerian crude production, Lipow said.

Light, sweet crude for August delivery closed down $5.31, or 4%, to $129.29 a barrel on the New York Mercantile Exchange. Today’sclose put the price of crude 12% lower – or nearly $18 less – than last week’s record high of $147.27 a barrel and the lowest since June 5.

The downward dash also hit other energy futures, such as natural gas, which fell more than 7% after a government report showed a larger-than-expected increase in U.S. inventories. Oil stocks also tumbled.

The fall in oil prices helped propel the stock market to its second straight gain.

The Dow Jones industrial average rose more than 200 points amid hope that suddenly lower energy costs could give a much-needed boost to struggling consumers and help the economy avert a severe downturn.

The Dow climbed 207.38 points, or 1.9%, to 11,446.66. The Standard & Poor’s 500 index and Nasdaq composite index each rose 1.2%.

The rally was led once again by battered financial shares, which jumped on better-than-expected earnings from J.P. Morgan Chase & Co. Its shares rose almost 14%. A closely followed bank-stock index jumped more than 9%.

J.P. Morgan’s results came a day after Wells Fargo & Co. also reported better-than-expected results, raising hope that the credit crunch won’t hurt Wall Street as much as feared.

However, the enthusiasm was tempered after the close of trading, when brokerage giant Merrill Lynch & Co. reported a larger-than-expected loss of $4.65 billion.

elizabeth.douglass

@latimes.com

 walter.hamilton@latimes.com