- The Washington Times - Wednesday, May 28, 2008

NEW YORK (AP) - Oil prices dropped below $129 a barrel yesterday, falling sharply on a growing sense that soaring gas and oil prices have cut demand for fuel during the normally busy summer-driving season. At the pump, meanwhile, prices rose, but only slightly, leading to renewed speculation that gas may follow the normal pattern of peaking around Memorial Day and then declining over the summer.

Although Energy Department data showing demand for gasoline over the Memorial Day holiday period won’t be released until next week, Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J., said, “it definitely was lower than [previous] Memorial Day weekends.”

Yesterday’s oil-price decline was notable in that it came in the face of news of supply problems in Mexico and Nigeria that could have driven oil prices higher. That’s an indication demand concerns are weighing on the market, giving investors reason to pull back from record high oil prices set last week, said Stephen Schork, an analyst and trader in Villanova, Pa.

Light, sweet crude for July delivery fell $3.34 to settle at $128.85 a barrel on the New York Mercantile Exchange, but fell as low as $128.18 in after-hours electronic trading. It was oil’s biggest one-day decline since March 31. Prices peaked at $135.09 a barrel Thursday.

The average national price of a gallon of regular gas rose only 0.1 cent overnight to a record $3.937, according to a survey of stations by AAA and the Oil Price Information Service.

“I think that we’re going to see that that is the peak or very close to it,” said Michael Lynch, president of Strategic Energy & Economic Research Inc. in Winchester, Mass.

Mr. Lynch thinks energy investors are selling on recent data showing that Americans are driving less as a result of high prices - including weekly Energy Department reports that demand for gasoline is falling, a Federal Highway Administration report showing Americans drove fewer miles in March and a AAA survey released before Memorial Day predicting that fewer people would hit the road over the long weekend.

“If present trends continue, we could be heading for the first annual drop in gasoline consumption in some 17 years,” said Edward Meir, an analyst at MF Global UK Ltd., in a research note.

If oil prices continue to fall, gas prices may not reach $4 on a national basis as some analysts have predicted. Still, prices are already above $4 in many parts of the country, and average more than $4 in 11 states and the District of Columbia.

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