Crude oil futures sank for a fourth straight day on Friday, settling beneath US$43 a barrel for the first time in nearly three months and capping a 14 percent decline for the week.
Market sentiment about the supply-demand fundamentals shifted most dramatically on Wednesday, when prices fell more than 7 percent amid rising inventories of heating oil and mild fall weather in the US. The selling then fed on itself, analysts said, due to technical and speculative trading.
"The scare is over and that just means the market is going back to where it belongs," said Ed Silliere, vice president of technical research at Energy Merchant Corp in New York. "We are more than well supplied and by that I mean there are not enough buyers for the product that's out there, for a while."
Light, sweet crude for January was down US$0.71 to US$42.54 per barrel on the New York Mercantile Exchange -- about 23 percent below October's peak settlement price of US$55.17 per barrel.
The price of oil is still 37 percent higher than a year ago, putting the greatest financial pressure on low-income families, chemical manufacturers and the airline industry.
In London, Brent for delivery in January was down US$0.79 to US$39.36 a barrel on the International Petroleum Exchange.
Petroleum prices have been high all year due to strong global demand, a tight supply cushion and fears of output disruptions in Iraq, Nigeria and Russia. In September, a strong hurricane knocked out significant oil production in the Gulf of Mexico, though the region's output is now recovering.
OPEC has been producing at a rate of more than 30 million barrels a day since September, analysts say, and that is also easing supply concerns. The cartel meets on Dec. 10 and price hawks such as Iran are calling for a reduction in output levels. While analysts do not expect OPEC to announce a production cut, at least for the time being, they say the group could decide informally to take some supply off the market.
A lot will depend on where prices go between now and next Friday. If US government data scheduled to be released on Wednesday show another increase in crude and heating oil, that could trigger more selling, said Jamal Qureshi, market analyst at PFC Energy in Washington.
Heating oil futures on Friday fell to US$1.248 per gallon, putting prices 14 percent lower than the beginning of the week and 20 percent below the October peak.
The most recent government data show residential heating oil prices averaging US$2.02 per gallon nationwide as of Nov. 29. That's about 60 percent higher than a year ago.
Nymex crude tumbled more than US$2 a barrel on Thursday and more than US$3 on Wednesday after the Energy Department reported that the nation's supply of distillate fuel, which includes heating oil, grew by 2.3 million barrels last week to 117.9 million barrels. Prices also declined on Tuesday in anticipation of the report.
Crude oil inventories grew by 900,000 barrels last week to 293.3 million barrels, or 10 million barrels more than a year ago.
In spite of rising supplies, the nationwide inventory of distillate is about 13 percent below last year's levels. As a result, analysts have warned that prices could go higher again if the North American winter begins to bite.
Supply disruptions elsewhere could also put upward pressure on prices since the amount of excess production capacity worldwide is only about 1 percent higher than daily demand.