Oil drops below $39 on dour economic news
updated 10:25 a.m. ET Feb. 20, 2009
Oil prices fell all but one day of the short trading week, including Friday, as economists voiced growing concerns about deflation.
Benchmark crude for March delivery fell 54 cents to settle at $38.94, on the New York Mercantile Exchange. That contract expired Friday and there was a very low volume in trades.
Light, sweet crude for April delivery fell 15 cents to settle at $40.03 a barrel.
“People are scared,” said Phil Flynn, an analyst at Alaron Trading Corp., who noted that gold prices rose above $1,000 an ounce as investors looked for a safe place to put their money.
Pump prices offered one bit of good news, however, dropping four days in a row. Retail gas fell 1.1 cents a gallon overnight to $1.938, according to auto club AAA, the Oil Price Information Service and Wright Express. Prices are 9 cents higher than a month ago, but $1.148 lower than a year ago.
Gasoline had risen every day for three weeks before Tuesday, a sore spot for motorists who watched oil prices linger around five-year lows.
Gas, which is mostly made from different varieties of crude oil than what’s traded on the Nymex, had been getting more expensive as refineries shut down early for maintenance in response to a plunge in consumer demand.
Brent crude, which is pulled from the
While Brent prices fell 10 cents to settle at $41.89 Friday on the ICE Futures exchange in
Flynn expects oil prices to eventually drop well below $30 a barrel in coming months as manufacturers cut operations and millions of laid off workers stop commuting to work.
“We’re getting ready for a tailspin, but you just don’t know what’s going to happen,” Flynn said. If it weren’t for the new federal stimulus package and promises of further OPEC production cuts, “we’d probably already be there.”
Trading on the Nymex has been erratic because of a influx of “dumb money” entering the market, analyst Stephen Schork said. Amateur investors are flocking to energy funds that have bet crude prices will eventually spike again.
“They’re looking at the fact that crude went to $150 a barrel a year ago, and it’s in the 30s today,” Schork said. “They think it’s going back up.”
Oil prices jumped briefly on Thursday after the Energy Information Agency reported that crude inventories in
The inventory report “may actually be seen as profoundly bearish,” Halff said, noting that demand on the East Coast has been shrinking in recent months.
Rising
The Department of Transportation said motorists drove 3.8 billion fewer miles in December than they did a year earlier. The 1.6 percent fall in driving marks the 14th consecutive monthly decline.
The Organization of Petroleum Exporting Countries has pledged to cut 4.2 million barrels a day from production, and the group’s leaders say they may go further when they meet on March 15.
But investors have so far brushed off OPEC supply cuts, sending prices down about 73 percent from a record 147.27 in July.
“What OPEC is encountering is a very significant drop in demand in the last six months,” said Toby Hassall, an analyst with Commodity Warrants Australia in
In other Nymex trading, gasoline futures fell 2.4 cents to settle at $1.0746 a gallon. Heating oil dropped less than a penny to settle at $1.1967 a gallon, while natural gas for March delivery slid 7.6 cents to settle at $4.01 per 1,000 cubic feet.
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