Energy prices plummeted in futures markets Wednesday, as spring worries about widespread shortages further receded amid soaring supplies.
Gasoline futures prices took their biggest one-day tumble in 2 1/2 years in the wake of industry data showing another surge in U.S. inventories.
Natural gas futures also plunged, falling to their lowest level in nearly a year, after the American Gas Assn. said inventories continued to climb at a faster-than-expected rate.
For American consumers, the data offer hope that the peaks in energy prices reached in the last six months won't be revisited any time soon. Instead, consumers may see more price relief on the way.
Experts said rising supplies also suggest that conservation efforts, coupled with weaker demand because of the slowed economy, have caught producers by surprise.
The Department of Energy said Wednesday that U.S. gasoline inventories jumped 3.7 million barrels last week, to a two-year high of nearly 220 million barrels.
Supplies have risen about 27 million barrels, or 14%, since early April--belying expectations of tighter inventories leading up to the peak summer driving season.
In futures trading in New York on Wednesday, gasoline for July delivery sank 6.34 cents to 79.03 cents a gallon, the lowest since December.
"The big supply build was not done on purpose and it shows the industry way overestimated demand," said Jan Stuart, analyst for ABN Amro in New York. "The most bearish explanation would be that, finally, the American consumer is curtailing demand due to the cumulative effects of high prices and a slower economy."
U.S. data show that average estimated demand for gasoline over the last four weeks has dropped 1.3% from the previous year, to 8.48 million barrels a day.
In part, analysts said the decline reflects poor driving weather in parts of the country this spring--such as in the Southeast, which was hit by a major tropical storm.
Still, some analysts said high prices almost certainly have caused people to drive less.
What's more, imports of gasoline have reached their highest level since August 1994, bolstering supplies, industry data show.
"In early May, a lot of guys out here were looking at empty tanks, but now there seems to be plenty of gasoline," said William Starbuck, manager of the gasoline department at J.D. Street & Co., a St. Louis petroleum products distributor.
"The gasoline market appears to be falling apart because the big oil companies are making a lot of the fuel available," he said.
Though declines in futures prices don't immediately translate into declines at the pump, retail gasoline prices have been pulling back from their highs.
California motorists paid an average $1.929 a gallon for self-serve regular gasoline in the week ended Monday, down 1.7 cents from the week before, the Energy Information Administration said.
Prices began their run-up 12 weeks ago, rising from $1.683 on March 26 to a peak of $1.954 on May 14--a record California price, unadjusted for inflation.
The average nationwide price reported Monday was $1.601 a gallon, down 4.6 cents, the EIA said, based on its weekly survey of 900 retail gasoline stations. The recent peak, also reported May 14, was $1.713.
Crude oil prices fell with gasoline on Wednesday, with near-term futures in New York down 98 cents to $26.50 a barrel. And in the natural gas market, near-term futures in New York fell 24.7 cents to $3.73 per million British thermal units, the lowest since last July.
The American Gas Assn.'s weekly supply report--released before trading ended Wednesday because of an association intern's mistake--said inventories rose a greater-than-expected 106 billion cubic feet, or 7.1%, last week. Analysts had expected an inventory gain of 92 billion cubic feet, according to a Bloomberg News survey.
Natural gas prices have been much higher in California, partly reflecting high demand for gas from electricity generators and a lack of adequate pipeline capacity coming into the state.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Commodity Price Deflation
Dragged down by falling energy prices, the CRB/Bridge Futures index of 17 major commodities fell 1.6% to a 52-week low Wednesday. Prices of other commodities also have been falling amid a weak global economy. Coffee, cocoa, copper and cotton all have slumped in recent months.
Bloomberg News and Reuters were used in compiling this report.