Oil prices drop below $124 a barrel

By THOMAS HOGUE

AP Business Writer

Bullit Marquez / AP Photo

A passenger glances at a protester displaying a placard Sunday, May 11, 2008 at Manila's Quezon city to urge motorists to join a nationwide public transport strike set for Monday to protest the weekly price increases of gasoline and other oil products. The protesters were demanding the government to "take decisive steps" against alleged oil cartels who have been increasing oil prices almost on a weekly basis.

Monday's mark of $126.40 a barrel was the sixth trading record in six trading sessions, and analysts said the market was due for a correction following the seemingly relentless climb upward.

Some attributed the drop-off in prices partly to expectations that Monday's earthquake in China would result in a temporary drop in demand. The 7.9-magnitude earthquake in central China's Sichuan province killed about 10,000 people and knocked power plants and other factories off-line.

China's two stock exchanges suspended trading Tuesday in 66 companies based in the region to minimize disruptions to financial markets from the disaster.

Victor Shum, an energy analyst with Purvin & Gertz in Singapore, though, discounted the quake as a factor in the fall in crude futures.

"The pullback in prices that we started to see yesterday and continued to see this morning is a result of profit-taking," Shum said. "The market was ready to take a breather and pocket some money ... after prices had gone up too far, too fast."

Light, sweet crude for June delivery fell $1.03 to $123.20 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore.

After hitting the trading record in the previous session, the contract started to drop and settled at $124.23 a barrel, down $1.73.

Monday's price fluctuation underscored the uncertainty over oil's future direction. Many analysts believe the weak dollar has driven oil prices to levels that defy fundamental supply and demand economics. But other investors see continued strong demand for oil and fuel from China and India as a sign that oil prices have further room to rise.

Moreover, growing concerns about declining crude production in Mexico, Russia and elsewhere are keeping prices near record territory, analysts say. Goldman Sachs said in a report last week that crude prices could rise to $150 to $200 within two years.

In other Nymex trading, heating oil futures fell 1.36 cents to $3.5462 a gallon while gasoline prices dropped 1.92 cents to $3.145 a gallon. Natural gas futures rose 1.9 cents to $11.32 per 1,000 cubic feet.

June Brent crude fell 96 cents to $121.95 a barrel on the ICE Futures exchange in London.