Why Oil Prices May Head Lower, for Now
This week's steep drop in oil prices may mean that crude is set to turn away from the $100-a-barrel mark amid gloomy U.S. economic forecasts and hints of higher supplies.</br></br>That is the good news for consumers. The bad news, energy analysts say, is that even if prices continue to slump, oil is almost certain to cost more on average next year than this year.</br></br>U.S. benchmark crude dropped sharply yesterday, falling $3.28 a barrel, or 3.4%, to $94.42 in futures trading on the New York Mercantile Exchange. But analysts stopped short of calling the shift a correction. The market remains unusually volatile and could easily shoot upward again -- even breaking the $100 mark -- if the Organization of Petroleum Exporting Countries doesn't follow through on talk of a production increase or if Western stockpiles dip unexpectedly. Oil prices hit an intraday record of $99.29 a barrel last week. Oil reached its inflation-adjusted high of $102 a barrel in April 1980.</br></br>Still, analysts point to a number of reasons prices are likely to ebb as the Northern Hemisphere heads into spring next year.</br></br>Topping the list is the sluggish U.S. economy, which some economists say is heading toward a recession as the meltdown of the U.S. subprime-mortgage market crimps lending. That would damp oil demand in the U.S., the world's largest oil consumer. It could also prompt a slowdown in other economies, including in China, now the fastest- growing consumer of oil.