Business

Oil falls $4.41, but gasoline rises

Oil closed at $126.62, which some say suggests an end to the run-up, and an oil-pricing investigation was disclosed.

The Associated Press

May 30, 2008 at 1:50AM

NEW YORK - Oil prices fell sharply Thursday after the Energy Department reported unexpected declines in crude oil supplies last week but said the drop was caused by temporary delays in unloading tankers along the Gulf Coast.

The decline of $4.41 a barrel came as a stronger dollar and concerns about gasoline demand also weighed on prices.

Retail gasoline prices, meanwhile, rose to a new record above $3.95 a gallon.

Light, sweet crude for July delivery settled at $126.62 a barrel on the New York Mercantile Exchange. It was the lowest settlement in two weeks and the biggest single-day price drop since March 19.

In Washington, meanwhile, the Commodity Futures Trading Commission revealed that it is six months into a wide-ranging investigation of U.S. oil markets, with a focus on possible price manipulation.

The commission also announced a handful of initiatives designed to increase transparency of the energy futures markets.

The commission said it started the investigation in December and was publicizing it "because of today's unprecedented market conditions."

Disclosure of the investigation may have contributed to oil's declines, analysts said.

"That's regulation that could change the landscape of what people have gotten used to," said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com.

After Thursday's inventory report, prices initially strengthened, then fell.

The ambivalent reaction partly reflects a deeper battle between investors who believe prices have risen far beyond levels that can be justified by underlying supply and demand fundamentals and those who believe speculative money will continue flowing into oil futures, sending prices higher regardless of the market's fundamentals.

"You're seeing some big funds in there throwing money around on both sides of the market," said Jim Ritterbusch, president of Ritterbusch and Associates, Galena, Ill.

But the magnitude of the day's price decline suggested to some analysts that the bullish momentum that pushed prices over $135 as recently as one week ago may be running out of steam.

"This was the first time we've had a bearish reaction," to news that in the past would surely have driven prices higher, Cordier said.

In its weekly inventory report, the department's Energy Information Administration said crude oil inventories fell 8.8 million barrels last week, and gasoline supplies fell 3.2 million barrels.