Oil prices end below US$119 after US inventory report shows jump in crude

Source: Agencies  |   2008-8-7  |     ONLINE EDITION

OIL prices briefly dropped below US$118 a barrel yesterday, US$30 below their record high , after a jump in US crude and other fuel stockpiles fed beliefs that high energy prices are eating into demand.

Light, sweet crude for September delivery finished the session down 59 cents at US$118.58 a barrel on the New York Mercantile Exchange. It was crude's lowest settlement price since May 2; prices earlier fell as low as US$117.11, a US$30, or 20 percent, drop from their trading high of US$147.27, reached July 11. Some investors believe a 20 percent pullback signals the beginning of a bear market.

In London, September Brent crude fell 70 cents to settle at US$117 a barrel

At the pump, falling crude kept weighing on prices. US filling stations hungry for business ratcheted down the price for a gallon of regular on average by another penny overnight to US$3.862 (US$1.01 a liter), according to auto club AAA, Oil Price Information Service and Wright Express. Prices have now fallen more than 6 percent from all-time highs above US$4 a gallon (US$1.05 a liter) reached July 17.

Oil market traders are paying close attention to see if oil falls below US$117, a key resistance level expected to trigger a rash of technical selling by computers programmed to dump oil contracts once prices fall below a certain threshold.

"There's a line in the sand just below US$117. If you close below that, it signals traders are giving up on the bull market in oil," said Tom Kloza, publisher and chief oil analyst of the Oil Price Information Service in Wall, New Jersey. "Subsequent rallies may take us higher, but the highs for the year have probably been put in."

Still, Kloza said a surprise event _ such as a flare-up of violence in the Middle East or a major hurricane slamming the US Gulf coast, could send prices soaring again. Other analysts say oil remains in a long-term upward trend, noting that futures contracts years out still peg prices above US$100 a barrel.