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Gas prices drop sharply after climbing Original Source Link: (May no longer be active)
http://www.forbes.com/home/feeds/ap/2005/04/07/ap1932433.htmlhttp://www.forbes.com/home/feeds/ap/2005/04/07/ap1932433.html
Associated Press
Update 12: Oil Prices Drop Sharply As Gas Plummets
04.07.2005, 02:57 PM
Oil prices fell nearly $2 a barrel Thursday, following the lead of gasoline futures. It was the fourth day in a row that prices had fallen, but analysts weren't ready to declare the end of a broader uptrend on energy markets.
After tumbling as low as $53.77 a barrel, light, sweet crude for May delivery was down $1.70 at $54.15 a barrel in afternoon trade on the New York Mercantile Exchange. Gasoline futures dropped nearly 11 cents before recovering somewhat to $1.57 a gallon, a decline of 8.9 cents. Gasoline futures settled at $1.73 a gallon last Friday.
"The market was extremely overbought," said Ed Silliere, a broker at Energy Merchant Intermarket Futures in New York.
Mario Chavez, a broker at ABN Amro in New York, said the steady decline in prices in recent days triggered a huge wave of technical selling. "It was crazy," he said.
The selloff came as the U.S. Energy Department on Thursday predicted that gasoline prices, now averaging $2.22 a gallon nationwide, would peak at about $2.35 a gallon this summer.
The price of oil is roughly 50 percent higher than a year ago, though still below the inflation-adjusted peak of around $90 a barrel set in 1980.
Tom Kloza, director of Oil Price Information Service in Lakewood, N.J., said Thursday's selloff might come as welcome news to motorists, but it does not mean the oil-price rally of 2005 is over.
"I would be reluctant to say that this is the end," Kloza said.
Energy traders have been skittish because of the world's limited excess production capacity, which they say leaves the global oil market more vulnerable than usual to supply disruptions. Global demand will average more than 84 million barrels a day, according to various industry estimates, while spare output capacity is believed to be about 1.5 million barrels.
In other words, it is the fear of a supply shortage, not an actual supply shortage, that underpins the market psychology.
On Wednesday the U.S. Energy Department said the supply of unleaded gasoline stood at 212.3 million barrels, or 5.5 percent higher than last year. However, gasoline demand remained healthy, up 2 percent from a year ago.
The government report also showed that the nation's inventory of crude oil was 317.1 million barrels, or 8 percent higher than last year.
"Although demand still remains strong, supplies are normal, as seen from the U.S. reports," Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures, said. "Even the current spare capacity is not that tight."
Emori said the current oil market remains "highly exaggerated," and that if prices followed market fundamentals, they should hover around the low $40 a barrel range.
AP Business Writer Jane Wardell in London contributed to this report.
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