Oil slides as traders take profits and supply worries dissipate

Source: Agencies  |   2008-7-9  |     ONLINE EDITION

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.