The escalating military conflict between Russia and Georgia and damage to a strategic pipeline in Turkey weren't enough to stop crude oil from continuing its downward slide Monday.
The drop reignited speculation that rocketing oil prices earlier this summer had more to do with speculative trading than with supply issues.
"It speaks volumes about how this market was hijacked by investors who pushed the market up -- and now they are pushing it down," said Peter Beutel, president of Cameron Hanover Inc., an energy risk management firm.
Others chalked up the drop to a stronger dollar and diminished demand from China.
The Chinese government reported that oil imports to the fast-growing country had fallen 7% in July to a seven-month low. The decline could reflect a mandated cut in manufacturing leading up to the Olympics.
Beutel, however, pointed out that oil prices would typically rise on the news that the Russian military was advancing deeper into Georgia. That puts at risk a pipeline that carries more than 900,000 barrels a day of light crude to world oil markets. The pipeline carries oil from Azerbaijan through Georgia and Turkey to the Mediterranean for shipment.
A recent explosion in Turkey has already stopped oil exports through that pipeline, forcing oil companies in Azerbaijan to cut oil production by 500,000 barrels a day. Exports are expected to resume through the pipeline in a week or so.
Others also were bracing for oil to rise.
"I expected we'd have a bit of a reaction today," said Rick Mueller, director of petroleum markets at Wakefield, Mass.-based Energy Security Analysis Inc.
But Mueller rejected the notion that the earlier rise in oil prices was completely disconnected from supply and demand fundamentals. Instead, he said, today's lower oil prices reflect the fact that "perceptions have changed" about demand.
"There's an overall view in the market right now that demand is really cratering," he said.
Whatever the reason, oil declined 75 cents to $114.45 in New York trading, bringing its decline to more than $30 a barrel over the last five weeks.
Gasoline prices are continuing to fall in crude's wake. The average price of gasoline nationally tumbled to $3.809 a gallon Monday, falling 7 cents in as many days, the U.S. Department of Energy said.
In California, the cost of self-serve regular averaged $4.118 a gallon, down 8.7 cents from last week but still $1.19 above the year-earlier price.
