Crude oil prices kicked off 2007 with a plunge below $59 a barrel Wednesday, as persistent mild weather in the United States led traders to bet on lagging demand for heating fuels.
Light, sweet crude for February delivery on the New York Mercantile Exchange fell $2.54 to $58.51 a barrel in midday trading, a 4.2 percent drop from Friday's settlement price.
The Nymex trading floor was closed Monday for New Year's Day and Tuesday for the memorial service for former U.S. President Gerald Ford.
In New York City, temperatures are in the 50s, and are expected to surpass 60 degrees Fahrenheit over the weekend. Forecasters are saying the warmer-than-normal temperatures in the Northeast United States — the biggest heating oil-consuming region — will continue through January.
“That's going to put heating oil distributors around the country in pretty bad shape,” said Mike Fitzpatrick, a vice president for energy risk management at Fimat USA.
Traders were pulling down prices near the low levels they reached late last year: “If those are breached, they can fall a long way,” Fitzpatrick said.
On Nov. 17, the crude contract had closed at $55.81 a barrel, the lowest settlement since June 15, 2005.
Crude hasn't settled above $62 a barrel since Oct. 1, in what's become a largely weather-driven market in recent years: surging to $70 a barrel for the first time in 2005 as Hurricane Katrina ravaged the Gulf Coast, breaking above $78 a barrel in July 2006 on worries of another bad storm season, and then sinking to $60 a barrel when those expectations weren't met.
The front-month crude contract finished 2006 at $61.05 a barrel — a penny above where it ended a year earlier.
This year's mild winter has arrived against a backdrop of ample global crude inventories, slowing economic growth in the United States, and a production spurt from non-OPEC countries.
Analysts are split, though, on whether crude oil prices will stay below the 2006 average of about $66 a barrel or rise to new heights this year. Arguments for the latter forecast include ballooning energy demand in some parts of the world, including China; threats of production cuts by OPEC; and ongoing political turmoil in oil-producing regions, such as Nigeria and the Middle East.
The Organization of Petroleum Exporting Countries' concerns that high global stockpiles and sluggish demand would cause prices to drop led it to agree on a 1.2 million barrel-a-day crude oil output cut in November and a further 500,000 barrel-a-day cut starting Feb. 1.
In Nymex trading Wednesday, heating oil futures fell 5.82 cents to $1.5900 a gallon, while gasoline futures fell 5.23 cents to $1.5640. Natural gas futures dropped 12.4 cents to $6.175 a gallon.
The Brent crude contract for February delivery fell $2.27 to $58.17 a barrel on the ICE Futures exchange, which was open on Tuesday.
Also Wednesday, traders positioned themselves for the U.S. Energy Information Administration's weekly report, which is expected to show that crude oil inventories fell last week for the fifth week in a row, while products rose.
Crude stocks are expected to fall by 1.32 million barrels, on average, according to a Dow Jones Newswires survey of analysts. Distillate stocks, which include heating oil and diesel fuel, are expected to increase by an average of 220,000 barrels, while gasoline inventories were seen rising by an average of 590,000 barrels.
