Oil prices fell sharply yesterday in what traders described as a wave of profit-taking after futures hit a new high above $55 a barrel and after gasoline futures fell sharply on indications of declining demand.
November crude futures plunged $1.26, or 2 percent, to settle at $53.67 per barrel on the New York Mercantile Exchange. November gasoline futures sank 5.9 cents, or 4 percent, to $1.3504 per gallon.
The slide in prices might not last, analysts said, explaining that it could provide the basis for fresh buying in a market that is still edgy about the world's limited supply cushion.
"I think the mantra 'buy the dips' is still firmly in place," said Aaron Kildow, a broker with Prudential Financial Inc. in New York.
Ed Silliere, vice president of risk management at Energy Merchant in New York, attributed yesterday's downward momentum to profit taking, which began after oil prices briefly surpassed $55 a barrel, as well as to signs of lower demand for gasoline.
"It's more than the normal seasonal dropoff in demand," Silliere said, "and we think it's price-related."
The Energy Department reported last week that the average daily demand for gasoline for the four weeks ending Oct. 8 was 8.94 million barrels, down 0.4 percent from a year earlier.
Meantime, the average retail price of gasoline nationwide is slightly above $2 a gallon, just a nickel below the May peak, according to the Oil Price Information Service, a Lakewood, N.J., provider of industry data.
Prices have skyrocketed about $10 in the past month, primarily over production delays in the Gulf of Mexico, where Hurricane Ivan hit mid-September.
Declines in US inventories of heating oil, diesel, and jet fuel just before the Northern Hemisphere winter are the latest in a line of supply factors to rattle the market.
The US Energy Department said in its weekly petroleum supply report last week that commercially available supplies of heating oil declined by 1.2 million barrels for the week ending Oct. 8, falling to 50 million barrels, or 10 percent below year-ago levels.
But given today's soaring price of heating oil, Silliere said he expects the industry to begin cranking out large amounts of fuel. Once refiners perform seasonal maintenance, "they're going to make nothing but heating oil."
Heating oil prices fell 3.94 cents to $1.5097 a gallon yesterday afternoon on Nymex.