WASHINGTON – Crude oil prices fell 4 percent in the past week and settled Friday at a five-month low just above $56 a barrel.
The steady move lower has coincided with mild U.S. weather, the recovery of oil production and refining facilities that were shut down by hurricanes Katrina and Rita and signs that gasoline demand had tapered off.
The average retail price of gasoline in the U.S. is down 25 percent from its early September high of $3.07 a gallon.
Traders are hesitant to declare that oil prices have bottomed out, but said a move higher would not be surprising either given the magnitude of the decline in such a short period of time.
"A lot of the reasons that took us up last year are still there," said oil broker Tom Bentz of BNP Paribas Commodity Futures in New York.
After falling as low as $55.40, light sweet crude for December delivery settled at $56.14 on the New York Mercantile Exchange, a decline of 20 cents. That is the lowest settlement price since June 15, when front-month crude settled at $55.57, and prices are about 20 percent below the late August peak of $70.85.
There are still plenty of factors supportive of prices, traders said, including the limited amount of excess oil-production capacity around the globe, the war in Iraq and the threat of a cold winter, which would drive up demand for home-heating fuels.
Bentz added that if oil prices continue to slide, OPEC may begin to try to prop them up by talking about, and possibly enacting, a production cut.
A lot will depend on the weather, analysts said.
"The expectation now is that sustained cold weather in the U.S. Northeast is just a matter of time, and that's keeping crude from falling too low," said analyst Victor Shum of Purvin & Gertz in Singapore.
Many parts of the United States experiencing chilly weather in the past few days will see an even colder blast next week, according to Accuweather.com.
December heating oil and gasoline futures were essentially unchanged, settling at $1.6962 a gallon and $1.462 a gallon, respectively.
Natural gas for December delivery declined by 52.8 cents to settle at $11.414 per 1,000 cubic feet.
In London, Brent crude futures rose 3 cents to $54.88 a barrel on the ICE Futures exchange.