Speculators Lead Selloff; Oil Prices Tumble $1 a Barrel

Oil prices tumbled more than $1 a barrel Monday, wiping out nearly all of 1989’s bull market rally as a morning fall led to a cascade of selling by speculators.

The March crude oil contract on the New York Mercantile Exchange closed down $1.06 at $17.33 a barrel, a loss of nearly 6% of its value in just one day. Traders said that as prices fell, those who follow technical charts joined in the selling, adding to the steep declines.

“The crude oil market was overbought last week and people were looking for chances to take profits and sell,” said one New York trader.

The selloff had been expected by many analysts who believed that the oil market was overdue for a technical correction. During a two-month rally that began Nov. 21, West Texas Intermediate, the benchmark U.S. oil, skyrocketed from $12.98 a barrel to a 14-month high of $19.28 last Thursday.

“Speculative buying has pushed U.S. crude oil prices to an unsustainable level vis-a-vis foreign crude,” said Jim Steel, analyst with Refco Inc.

“There were just waves of selling . . . from everywhere today,” explained Peter Beutel, an energy analyst with Elders Futures Inc. “A lot of people had felt that a correction was long overdue, but they just didn’t want to get out.”

Beutel noted that since early October, WTI had risen more than $7 to over $19 a barrel on optimism that the Organization of Petroleum Exporting Countries would significantly cut its output to help shore up sagging worldwide prices.

Also contributing to the decline was unseasonably warm weather in the Northeast, reducing the need for heating oil. The February heating oil contract was down a steep 2.24 cents at 50.36 cents gallon in active trading.

“We’re more than halfway through the winter and supplies are still more than adequate,” said Robert Greenes, a spokesman for the New York Heating Oil Assn. Roughly 40% of the single-family homes in the Northeast use heating oil as a primary fuel.