In The News

Oil prices slump to start the week

SIOUX FALLS, S.D. — Energy prices fell Monday a day before major first-quarter corporate results begin to arrive. It remained unclear if the U.S. economy has bottomed out, or whether demand for oil and gasoline will rebound strongly this year with many households cutting back on spending.

Benchmark crude for May delivery fell $1.85 to $50.66 a barrel on the New York Mercantile Exchange. Prices settled at $52.51 on Friday, ending the week essentially flat.

There have been few bright spots for U.S. corporations over the past year and the markets got another surprise late Sunday following the apparent collapse of IBM Corp.'s $7 billion acquisition of Sun Microsystems Inc.

The Dow Jones industrials dropped 120 points to open the week. There are no economic reports or major earnings scheduled for Monday, but Aluminum producer Alcoa Inc. kicks off earnings season on Tuesday.

Crude has jumped from below $35 a barrel in February as investor concerns have eased that the ailing U.S. economy would enter a depression and drag the rest of the world with it.

Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, said fundamentals have had little to do with rising crude prices.

"If anything, the fundamentals became even more bearish amid this rally," he said.

Many crude traders believe a lot of money has re-entered the market prematurely with little sign from consumers or businesses that spending on energy will increase.

Tom Pawlicki, an analyst with MF Global research, noted that the four-week U.S. oil demand average is only 205,000 barrels per day above lows struck last October, and that demand has been falling fairly steadily since early January. Gasoline inventories rose week last even though the refineries that make gas cut back on production, Pawlicki said.

Dire employment numbers in March were also largely ignored by crude investors, which analyst and trader Stephen Schork described as "horrible."

"People want to buy," Schork said in his daily oil report. "We have yet to reconcile the whys and wherefores of this sentiment, but we cannot deny its existence."

Prices at the pump, however, have fallen for six days now, and that comes at a time when, at least for the past five years, prices begin to tick upward as refiners switch over to more expensive summer blends and people begin to drive more.

Retail gasoline prices fell overnight to a new national average of $2.039 for a gallon of regular unleaded, down a tenth of a cent from Sunday, according to auto club AAA, Wright Express and Oil Price Information Service. Gasoline is more than 9 cents a gallon higher than a month ago but about $1.28 a gallon cheaper than it was last year this time.

Phil Flynn, an analyst at Alaron Trading Corp., said the summer driving season could be a key indicator of how much the economy is hurting.

"People losing jobs will cut back on vacations especially if gas prices go through the roof," Flynn said in his morning report.

Ritterbusch said gasoline isn't facing oil's drastic supply surpluses and refineries are running at relatively low levels, so a couple of refinery snags could send prices upward.

"We still have plenty of time for a gasoline-led price rally like we usually tend to get in the spring," he said.

In other Nymex trading, gasoline for May delivery fell 3.5 cents to $1.4574 a gallon and heating oil dropped 4.4 cents to $1.402 a gallon. Natural gas for May delivery lost 6.5 cents to $3.736 per 1,000 cubic feet.

In London, Brent prices fell $1.85 to $51.62 a barrel on the ICE Futures exchange.

Associated Press Writers Alex Kennedy in Singapore and Pablo Gorondi in Budapest, Hungary, contributed to this report.

Dorothy Cox of The Trucker staff can be reached for comment at [email protected] .