Crude Oil Futures Plunge on Supply News, Weather

The price of crude oil futures, which soared near a four-year high last week, plummeted $1.46 a barrel Monday as warmer weather in the Eastern United States eased fears of heating oil and other product shortages and as worldwide supply promised to remain ample.

“We’re seeing a correction in the market and a change in the market’s psychology as the industry returns to normal,” said Joel D. Fischer, an industry analyst with the Drexel Burnham Lambert investment bank in New York.

February contracts for West Texas Intermediate, the benchmark U.S. crude, dived to $21.62 a barrel in trading on the New York Mercantile Exchange after losing 33 cents a barrel on Friday.

Crude prices had closed as high as $23.68 last Wednesday, the highest level since April 20, when futures prices for WTI reached a four-year-high of $24.65 a barrel.

Crude prices appeared to follow the path of heating oil, which had shot up as bitterly cold weather increased demand while refinery problems and frozen wells constrained supply. But the price of heating oil also dropped Monday as the weather eased.

February heating oil dropped 3.5 cents to 64.33 cents a gallon after falling more than 5 cents on Friday; March heating oil fell 2.83 cents to 59.4 cents.

Spot prices for heating oil--the price at which non-contract heating oil is traded--had shot up about 62% during December’s cold snap.

Crude oil traders may also have been affected by a report Monday by the Middle East Economic Survey that the Organization of Petroleum Exporting Countries has allowed total output to increase to nearly 24 million barrels a day in December, about 2 million barrels higher than limits set late last year, said Hartley Connett, a director of Elders Energy Group in New York.

At the same time, Mana Said al-Oteiba, minister of petroleum and mineral resources for the United Arab Emirates, an OPEC member, was quoted Monday as saying that OPEC members had a right to produce as much oil as they wanted.

Reuters reported that al-Oteiba also said the current reference price of $18 a barrel, used to set OPEC quotas, should not stay fixed indefinitely and that the question will be examined at the next OPEC meeting in March.

“That was taken by the market as a bearish fundamental factor,” Connett said. “Other than that, it was just generally a continuation of the vicious selloff of product contracts in the last few days.”

Other product prices traded lower on Monday. February contracts for unleaded gasoline fell 3.74 cents a gallon to 58.48 cents after rising partly because of the refinery problems.

On the spot market, West Texas Intermediate was quoted at $21.65 per barrel, compared to $23.05 Friday.