Oil futures prices plunged by more than $2 a barrel Thursday, continuing a selloff that began last week amid rising U.S. supplies of crude and expectations of a surge in heating oil production before winter arrives.

Also helping to push prices below $49 a barrel was an Energy Department (search) report showing a larger-than-expected increase last week in the amount of natural gas in storage, which was already abundant.

"This is acting like a bear market," said Ed Silliere, vice president of risk management at Energy Merchant Corp. in New York.

Silliere said there was a large wave of selling among well-financed institutional investors, adding to the downward momentum.

Light crude for December delivery fell by $2.06 to settle at $48.82 per barrel on the New York Mercantile Exchange (search). It was the first time prices settled below $49 a barrel since Sept. 24.

Oil prices have fallen $6.35, or 11.5 percent, since last Tuesday, when Nymex futures settled at $55.17 per barrel, matching the record settlement price first set Oct. 22.

"The market does have some downward momentum," said Steve Turner at Commerzbank in London, citing fears that the global economy is starting to slow, which could shrink demand.

Oil price strategist Adam Sieminski of Deutsche Bank in London said "concerns about inventories and the upcoming winter" could result in some near-term upward movement. But he said he expected prices at $40 a barrel rather than $50 by the first quarter of next year, due in part to rising supply.

The U.S. Energy Department reported Thursday that natural gas in storage rose by 44 billion cubic feet to 3.29 trillion cubic feet, or 7.8 percent above the five-year average for this time of year. December natural gas futures, which are up more than 75 percent from a year ago, fell 33.2 cents to $8.42 per 1,000 cubic feet on Nymex.

Aaron Kildow, a broker with Prudential Financial Inc. in New York, said the build in natural gas storage put further downward pressure on oil prices and heating oil futures, which had been in positive territory earlier in the day due to concerns about supplies heading into winter.

The Energy Department reported Wednesday that distillate fuel inventories, which include heating oil, diesel and jet fuel, fell by 900,000 barrels last week to 115.7 million barrels, or 12 percent below last year. But many traders believe the high price will give refiners the incentive needed to boost supply in the coming weeks.

December heating oil futures were down 4.88 cents at $1.375 per gallon on Nymex.

The decline in oil prices mainly reflected the market's reaction to the Wednesday Energy Department report, which showed that commercially available stocks of crude oil in the United States rose by 6.3 million barrels to 289.7 million barrels last week. A week earlier, the agency reported a 4 million barrel rise.

Traders speculated over what the Bush re-election would mean for energy policy, with analysts saying he is likely to maintain a fossil-fuel friendly policy and bolster U.S. strategic reserves, already at 670 million barrels.

Demand is high in a time of tightening supply, with excess capacity around 1 percent of average global demand of 82.4 million barrels daily in 2004. The United States and China are the two biggest consumers of crude.

There also are continued worries over oil supply:

-- In Iraq, militants have threatened to strike oil installations and government buildings if the Americans launch an all-out assault on Fallujah. Exports from northern Iraq have already been suspended for up to 10 days after saboteurs blew up a pipeline there.

-- In Africa's largest producer Nigeria, thousands marched in support of a strike called Nov. 16 to protest domestic fuel prices. Unions have vowed to hit oil exports, now at 2.5 million barrels daily.

Crude oil prices have risen steadily since Gulf of Mexico output was battered by Hurricane Ivan (search) in mid-September. Daily oil production there is still down by 13 percent but has been improving, contributing to the drop in prices.

Adjusting for inflation, oil prices would need to surpass $90 per barrel to approximate the all-time high in 1980.