OIL futures tumbled more than US$5 a barrel yesterday in their second big drop this week, hurling crude back to levels not seen since June 26 as traders wary about the health of the global economy cashed in gains from oil's recent rally.
Light, sweet crude for August delivery fell US$5.33 to settle at US$136.04, after earlier slumping as low as US$135.14. The decline followed a US$3.92 slide on Monday. August Brent crude also lost heavily, dropping US$5.44 to settle at US$136.43 barrel on the ICE Futures exchange in London.
The market's bearish turn this week erases, at least for the time being, the effect of a rally that pushed prices past US$145 in a string of record-setting sessions before the Fourth of July.
Analysts attributed much of the recent sell-off to profit-taking, saying traders were cashing in on the previous week's gains. A stronger dollar also helped keep prices lower by discouraging investors from pumping more money into commodities.
At the same time, concerns about global oil supply disruptions subsided and fears that the economic slowdown is spreading moved to the forefront.
"Sagging global equities, which are tipping a lack of confidence in economic growth in both developed and emerging economies, helped trigger the retreat in the energy markets," Addison Armstrong, director of market research at Tradition Energy, said in a research note.
Still, analysts warned the pullback could be fleeting.
"For the time being it's what we call corrective. ... It's a profit-taking pullback that could still be followed by fresh highs down the road," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.
Ritterbusch said yesterday's decline may have gained added momentum when computer models used by large investment funds automatically sold oil contracts once prices fell to a pre-set threshold.
"A significant part of it's technical," he said of the day's trading. "A lot of these funds don't watch supply and demand fundamentals."
Oil hit a trading record of US$145.85 on last week before settling at a record close of US$145.29 a barrel.
Concern over the unruly oil market was a top priority yesterday at a summit of industrialized powers in Rusutsu, Japan with leaders calling on petroleum suppliers to boost production and refining and to increase investment in oil exploration and output over the medium term.
The G-8, which groups the US, Britain, Japan, France, Germany, Canada, Russia and Italy, also called for diversifying sources of energy and further efforts to improve energy efficiency.
"We remain positive about the long-term resilience of our economies and future global growth," the communiqué said, noting that growth in emerging economies remained strong. "However, the world economy is now facing uncertainty and downside risks persist."
The US dollar was stronger against the euro and the pound, but lost ground against the Japanese yen and the Swiss franc. A falling dollar has helped boost oil prices about 50 percent this year, with investors often buying commodities such as oil as a hedge against inflation when the greenback weakens.
Along with some signs of life from the dollar, fears that fresh conflict in the Middle East could cut oil supplies eased over the weekend after Iran gave an undisclosed response to an international offer of incentives if it suspends a central part of its nuclear program.
In other Nymex trade, heating oil fell by 14.94 cents to settle at US$3.8202 a gallon and gasoline futures sank by about 12 cents to end at US$3.3631 a gallon. Natural gas futures dropped 60.9 cents to settle at US$12.368 per 1,000 cubic feet.