Crude Prices Fall as Oil Traders Rush to Dump Costly Contracts

The fear of losing money seems to have temporarily overcome the fear of Mideast turmoil among traders in the oil futures market.

Oil futures prices continued to slide Wednesday on the New York Mercantile Exchange in the absence of major new developments in the Persian Gulf drama.

Analysts said the decline, which began in Tuesday’s session, was accelerated by traders rushing to dump contracts purchased after violence erupted in the Mideast over the weekend.

Contracts for September delivery of West Texas Intermediate, the benchmark U.S. crude oil, settled at $21.29 per 42-gallon barrel, down 68 cents from Tuesday’s close.

During Monday’s hectic session, which followed riots in Saudi Arabia and renewed anti-U.S. threats from Iran, the price of the September contract had soared as high as $22.67 a barrel.

“We’re at a point now where people have decided to take their money and run,” said John O’Dea, analyst for Dean Witter Reynolds Inc.

Most of Wednesday’s activity in the oil market came from the liquidation of long positions by speculators who had snapped up contracts earlier expecting that escalating tensions in the Middle East would continue to drive the market higher.

By Wednesday, it became apparent that the market could not support those lofty price levels.

“The problem is that there is an overwhelming number of people on the long side of the market. The thing has to collapse from its own weight,” O’Dea said.

Also contributing to the selloff was the latest weekly data from the American Petroleum Institute showing a sharp buildup in U.S. inventories of crude oil.

Prices for refined oil products also skidded. The September contract for wholesale unleaded gasoline was off nearly a cent at 54.98 cents a gallon, while the near-term contract for wholesale No. 2 heating oil also declined about a cent, to 55.49 cents a gallon.