Oil markets looking for signs of bubble burst

http://www.msnbc.msn.com/id/12400801/


NEW YORK - The price of oil recorded its biggest weekly drop ever, and a gallon of gas finally pulled back from its record high. So is it time to declare the energy bubble popped?

Experts won’t go that far just yet.

“It’s too early to say we’ve seen the worst of it,” said Tom Kloza, publisher and chief oil analyst of the Oil Price Information Service in Wall, N.J. “We would be Pollyannish if we believe one week represents a trend.”

Still, with oil recording yet another drop on Friday, some industry experts who just days ago thought there was more juice left in oil’s meteoric run are reconsidering.

“If this is not the bubble’s implosion, than it’s a reasonable facsimile,” analyst and trader Stephen Schork said in his daily market commentary. “Perhaps all we have witnessed was a replay of last August’s subprime induced sell-off. Time will tell. Nevertheless, for the time being we no longer care to hold a bullish view.”

Oil’s drop may have an immediate effect, as gas station owners desperate to get drivers back to the pump consider a pre-emptive cut in price.

The price for a gallon of regular fell to $4.105, down nearly a penny, according to AAA, the Oil Price Information Service and Wright Express. Diesel prices also eased, dipping three-tenths of a cent to $4.842 a gallon.

“We could see the nationwide average drop down to $4 or perhaps lower than that. And we think that could happen relatively quickly ... within the next couple of weeks,” said Geoff Sundstrom, a spokesman for auto club AAA.

Light, sweet crude for August delivery fell 41 cents to settle at $128.88 a barrel on the New York Mercantile Exchange.

The increase wasn’t much of a surprise, considering that a barrel of oil is now more than 10 percent cheaper than it was at the start of the week. Perhaps more stunning is the market’s inability to spark a larger rally.

But consumers have been jolted repeatedly by unheard of gas prices, and immense changes in how consumers, particluarly American consumers live are already in motion.

Car buyers have been fleeing to more fuel-efficient models as gas prices have climbed beyond $4 per gallon. U.S. sales of pickups and sport utility vehicles are down nearly 18 percent this year through June, while sales of small cars are up more than 10 percent.

While slashing production of more-profitable trucks and sport utility vehicles, automakers have been scurrying to build their most fuel-efficient models faster. Toyota Motor Corp., which hasn’t been able to keep up with demand for its 46-miles-per-gallon Prius hybrid, said last week that it will start producing the Prius in the U.S. and suspend truck and SUV production to meet changing consumer demands.

Ford Motor Co. and General Motors Corp. also have announced plans to increase small car production, and GM has said 18 of the 19 vehicles it is launching between now and 2010 are cars or crossovers.

Friday’s gains follow a three-day swoon in which oil prices tumbled nearly $16. Just last week, oil hit an all-time high above $147 a barrel.

Many oil traders buy and sell energy futures based on technical indicators that attempt to determine whether prices have support at various value levels. From that point of view, Nymex futures are “getting into deeper trouble,” said analyst Olivier Jakob of Petromatrix in Switzerland.

“Buying here is an opportunity if you are a deep believer in $200 (a barrel), otherwise we think that caution would be better applied,” Jakob said in a research note.

If oil buyers sense that the slide was overdone, the impact will be felt almost immediately by everyone.

“If (oil prices) rebound, you’re going to see a quick reaction at the gas station, beceause their profit margins are so stretched,” Sundstrom said. “They may be very fast bringing prices back up.”

In other Nymex trade, heating oil futures fell 2.59 cent to $3.7179 a gallon while gasoline futures rose 4 cents to $3.2034 a gallon. Natural gas futures rose 7.8 cents to $10.615 per 1,000 cubic feet.

In London, Brent crude futures for September delivery rose 20 cents to $131.27 on the ICE Futures Exchange.

in the front month NYMEX contract, 130 is a key support area.

That area was tested today, and if breached, may offer upside resistance. With the tropical looming, I wouldn't want to be short over the weekend, since risk is undefined, but there it is

drilling and the price of crude immediately dropped from over $140 to under $130. Doesn't that make the people that oppose off shore drilling and drilling in AWAR look like obstructionists to the American people?