Oil Slides Below $50 Mark
Oil prices plunged below the $50-a-barrel mark Friday for the first time in more than two months, triggering hopes for cheaper gasoline and diesel prices as the summer travel season approaches.
Light crude for June delivery dropped $2.05 to $49.72 a barrel on the New York Mercantile Exchange. The U.S. benchmark grade, which last settled below $50 on Feb. 18, fell $5.67 a barrel, or about 10%, during the last week amid rising U.S. supplies and fears of a softening world economy that could suppress global demand in coming months.
The $50 mark is a psychological barrier that, once broken, makes its easier for traders to think in terms of lower prices, said Tom Kloza, chief oil analyst for the Oil Price Information Service in New Jersey.
“If there’s no contrary news, this thundering herd may stampede to the mid-$40s in relatively short order,” he said. Oil futures are 13% below the record of $57.27 a barrel set April 1 but are still 33% higher than a year ago.
Not all analysts are ready to predict that prices are cooling.
“I don’t think oil prices will go down much further,” said Mark Baxter, director of the Maguire Energy Institute at Southern Methodist University in Dallas. “Even though economic growth isn’t as high as it was, we still have growth, and I think demand will outstrip supplies as we approach Memorial Day weekend.”
Also a contrarian on gasoline prices, Baxter sees retail prices climbing by a dime or so a gallon in coming weeks. Most analysts, though, see gasoline following crude oil’s downward trend.
Gasoline prices have been edging lower but haven’t matched oil’s tumble. That’s largely because gas prices also are affected by the ability of refiners to make more, and most refineries are operating at near full tilt already.
In addition, oil-price declines often pass through to the pump more slowly than oil-price increases do.
U.S. gasoline futures closed Friday at $1.493 a gallon, down 5.57 cents, on Nymex.
The national retail average for a gallon of self-serve regular gasoline Friday was $2.238, up nearly half a penny from Thursday and a 4% increase from $2.145 a month earlier, according to the AAA Fuel Gauge Report.
In California, Friday’s average was $2.628 a gallon, down one-tenth of a cent from Thursday but 9.4% higher than the month-earlier average of $2.402, AAA said. California prices track much higher than the U.S. average because the state requires a cleaner-burning gasoline.
Nationally, “I think we’ll see lowering [pump] prices” over the next month, said Phil Flynn, senior oil analyst with Chicago-based Alaron Trading Corp.
Oil prices have been sliding this week as economists have cautioned about a slowing of the economic boom that was thought to be creating unprecedented demand for oil through the summer.
In addition, the Energy Department said Wednesday that inventories of crude oil in the U.S. -- the world’s largest energy-consuming country -- grew by 5.5 million barrels from the previous week to 324.4 million barrels. That’s 9% above year-earlier levels and marked the 10th time supplies had risen in 11 weeks.
Members of the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, have been pumping more than their official quotas to build world oil supplies and calm overheated markets.
Also during the last week, President Bush talked up plans to control rising crude prices. On Monday, Bush called on Saudi Arabia to expand its ability to pump more oil and Wednesday suggested that refineries could be built at closed military bases to increase gasoline supplies.
But analysts said Bush’s jawboning had little to do with Friday’s fall.
“He is talking about long-term solutions, and traders don’t deal in hope,” said John Kingston, oil director at Platts, a New York-based energy news agency.
