Oil prices plummeted to nearly $50 a barrel Thursday, setting a new 20-month low, after the government reported larger-than-expected jumps in crude oil and gasoline inventories.
A barrel of light, sweet crude for February delivery dropped $1.76 to close at $50.48 on the New York Mercantile Exchange. Prices dropped as low as $49.90, their lowest since May 25, 2005, shortly after the inventory report's release by the federal Energy Information Administration (EIA).
Crude prices this week have continued to inch closer to the psychologically important $50 barrier, and analysts said the market could cross the mark soon.
"I could tell you that it will be within the next couple of days or weeks, but this market doesn't really dally," said Peter Beutel of Cameron Hanover.
U.S. crude oil stocks leaped by 6.8 million barrels to 321.5 million, when analysts had been expecting an increase of just 325,000 barrels, according to a Dow Jones Newswires Survey. The EIA said inventories are above the upper end of the average range for this time of year.
Gasoline inventories, meanwhile, rose by 3.5 million barrels to 216.8 million, above analysts' expectations of a 2.6 million barrel rise. Distillate stocks, including heating oil and diesel fuel, rose by 900,000 barrels to 141.9 million barrels, compared with analysts' expectations of a 1.3 million barrel rise.
The EIA said inventories for both gasoline and distillate fuels are at or above the upper end of the average range for this time of year.
"I think when you get these huge swings, you have to look not just at one week but look at the average over the last three weeks," said Phil Flynn of Alaron Trading Corp.
Over that span, Flynn said the inventory data show some support for crude prices. If crude prices can stay above $50, Flynn said he thinks the market could rebound. But if prices cross the threshold, they could drop further.
Before the EIA release, prices had bounced up and down around Wednesday's settlement price of $52.24, as traders weighed the effect of a cold snap in the U.S. Northeast and forecasts of bearish demand growth from the International Energy Agency.
In lowering expectations for this year as well revising last year's figures downward, the Paris-based IEA cited mild winter weather that has crimped energy demand and weaker expectations for U.S. economic growth.
In its closely watched monthly oil market report, the energy watchdog forecast global oil demand growth this year of 85.77 million barrels a day, down 160,000 barrels a day. And it said oil demand growth last year was 120,000 barrels a day lower.
March Brent crude on London's ICE futures exchange slipped $1.24 to $51.54.
Heating oil slipped by 3.53 cents to $1.4645 a gallon while natural gas futures rose 1 cent to $6.244 per 1,000 cubic feet.
Gasoline prices fell 2.86 cents to $1.35 a gallon.
That price might look very good to motorists.
Oil analyst John Kilduff told CBS News Radio that consumers went from having "some of the worst luck I've ever seen to some of the best," with no hurricanes this summer and minimal winter fuel demand.
And while CBS News Radio correspondent Dan Raviv reports that countries in the OPEC cartel are working to reduce their production, Kilduff believes they aren't.
"The complete lack of Winter weather, really, up until just recently, oversupply in the market and the inability of OPEC to control their production has combined to just take a lot of the speculative froth off of prices," Kilduff said.
Oil powerhouse Saudi Arabia remains undeterred by crude's recent drop.
Saudi oil minister Ali Naimi, who earlier this week said he opposed calls from other OPEC members for new cuts in production, announced Thursday his country planned to increase its crude oil production capacity nearly 40 percent by 2009 and double its refining size over the next five years to keep pace with growing global demand.
Naimi blamed the sharp rise in global crude prices over the past two years mostly on "insufficient investment and rising energy demand," especially from the booming economies of Asia.
"The rise has been a wake-up call for the industry and for producers and consumers alike, who are now beginning to address deliverability problem head on," he said at an international energy conference in New Delhi.
But Yemen's oil minister, Khalid Mahfoudh Bahah, who was also attending the conference in New Delhi, said he expects oil price to average between $55 a barrel and $60 a barrel in the coming months.
Vienna's PVM Oil Associates said Naimi's opposition to further cuts for now may be a call to other OPEC members "for better compliance with the already agreed output reductions, the second of which has yet to come into effect."
OPEC has committed to a total cut in output of 1.7 million barrels per day, including a 500,000 barrel-a-day reduction set to begin Feb. 1. A survey by Dow Jones estimates OPEC has cut output by little more than half of its pledged levels. Production remains near 27 million barrels a day or about 700,000 barrels a day above OPEC's target.