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Is Oil Market Bubble Near Bursting?

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The Associated Press

Published: July 19, 2008

NEW YORK - Prices at the pump pulled back from record highs Friday as another slide in oil capped crude's biggest one-week drop in more than three years.

Gasoline dropped by nearly a penny at filling stations across the country. If crude prices hold at current levels or head even lower, drivers may see further relief at the pump in the coming days.

Is it time to declare the energy bubble over? Experts aren't ready to go that far just yet. Oil has bounced back repeatedly from big drops, and oil prices continued to erase record highs this year.

Sentiments are shifting, however. Experts who just days ago thought the market's meteoric run still had legs are growing cautious. Some say July 11's high above $147 a barrel may be the last record the market sees - for now.

"If this is not the bubble's implosion, than it's a reasonable facsimile," analyst and trader Stephen Schork said in his daily market commentary. "Perhaps all we have witnessed was a replay of last August's subprime induced sell-off. Time will tell. Nevertheless, for the time being we no longer care to hold a bullish view."

Oil's drop may have an immediate effect, as gas station owners desperate to get drivers back to the pump consider a pre-emptive cut in price.

The price for a gallon of regular fell to $4.105, down nearly a penny, according to AAA, the Oil Price Information Service and Wright Express. Diesel prices also eased, dipping three-tenths of a cent to $4.842 a gallon.

"We could see the nationwide average drop down to $4 or perhaps lower than that, and we think that could happen relatively quickly ... within the next couple of weeks," said Geoff Sundstrom, a spokesman for auto club AAA.

August's contract for light, sweet crude fell 41 cents to settle at $128.88 a barrel on the New York Mercantile Exchange.

The increase wasn't much of a surprise, considering that a barrel of oil is now more than 10 percent cheaper than it was at the start of the week. Perhaps more stunning is the market's inability to spark a larger rally.

Consumers have been jolted repeatedly by unheard of gas prices, and immense changes in how consumers, particularly American consumers live, are in motion.

Car buyers have been fleeing to more fuel-efficient models as gas prices have climbed beyond $4 a gallon. U.S. sales of pickups and sport utility vehicles are down nearly 18 percent this year through June, and sales of small cars are up more than 10 percent.

Friday's gains follow a three-day swoon in which oil prices tumbled nearly $16. Just last week, oil hit an all-time high above $147 a barrel.

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