Demand sends oil below $79 a barrel
Global recession expected to cut use
NEW YORK - Oil prices fell below $79 a barrel in choppy trading yesterday as investors took profits from the previous day's rally and shifted their focus back to signs of dwindling world energy demand.
A falling US stock market, a day after a record-breaking advance, also weighed on crude prices as oil market traders continued to fixate on equities as a barometer for the overall confidence in the shaky world economy.
At the pump, retail gas prices kept dropping. A gallon of regular dropped 4.3 cents overnight to a national average of $3.16, according to auto club AAA, the Oil Price Information Service, and Wright Express. In Massachusetts, AAA Southern New England said, self-serve, regular unleaded averaged $3.14 per gallon, 18 cents less than last week.
Andrew Lebow, senior vice president and broker at MF Global in New York, said "oil is still following equity markets" but noted fears of a demand-crushing US recession despite a litany of bailout measures is also prompting traders to sell crude.
"On a historical basis, $80 a barrel is still very expensive," Lebow said. "The economy clearly proved that it couldn't handle prices at well above $100, so what's equilibrium price? We have no idea."
Light, sweet crude for November delivery fell $2.56 to settle at $78.63 on the New York Mercantile Exchange after fluctuating between positive and negative territory most of the day.
Mike Zarembski, senior commodity analyst at brokerage OptionsXpress Inc. in Chicago, predicted oil would trade in a range of $75 to $85 a barrel in the short term as the globally coordinated financial rescue efforts eases some of the panic among investors.
"We may be seeing the start of some stability. I think the market is kind of tired of all the volatility," said Zarembski. "We'll probably be in wait-and-see mode until we know how all these [bailout] scenarios play out." 