Oil prices amazed nearly everyone with how high they went. Could the shock now be how low they'll go?
Crude futures in New York fell Wednesday for the sixth time in seven sessions, dropping $3.98 to $124.44 a barrel, the lowest closing price since June 4. The latest decline, coupled with some upbeat corporate financial results, sent stock prices up.
The government's report of a larger-than-expected weekly rise in gasoline inventories helped spark the sell-off in oil.
Oil is down 14.4% from its record closing high of $145.29 on July 3. But given how many times traders and analysts were wrong in calling the peak over the last year -- $90, $100, $120, $130 -- there's a natural reluctance to believe this time it's for real.
"We've see this movie before," said John Kilduff, senior vice president of risk management at trading firm MF Global Inc. in New York.
Still, he said, "Things are a little different this time because of the economy."
Gasoline demand is falling in the U.S. as consumers retrench. Business conditions have deteriorated in Europe. Even China's economic growth has slowed this year.
In a report issued Wednesday on regional economic trends, the Federal Reserve indicated the pace of activity had "slowed somewhat since the last report" on June 11. And that last report wasn't exactly brimming with optimism.
Meanwhile, record energy costs "are destroying demand" for oil, said Peter Beutel, head of energy consulting firm Cameron Hanover Inc. in New Canaan, Conn. "Prices are way too high."
Oil still could run to $170 a barrel, he said, if a major hurricane hits oil and gas fields in the Gulf of Mexico or if Israel or the U.S. attacks Iran. But barring a catastrophe, Beutel said, there's nothing stopping crude from sinking back to $80 based on economic fundamentals.
And the mad rush to $145, as speculators poured into the market since March, could ensure that the current sell-off also turns into a mad rush to exit the market, some analysts say.
Why? Because speculators are only interested in playing the price trend, whichever way it's going, said Larry Young, senior trader at Infinity Futures in Chicago.
"You can make money just as well on the short side when the price is retreating," he said.
The next big test for chart-watching traders is the $121-a-barrel level, Kilduff said. If the price breaks through that mark, look out below, he says.
