The rally driving risk-sensitive assets higher is leaving oil in the dust, a function of burgeoning U.S. energy supplies and fears about global demand that are throwing cold water on crude prices -- and analysts increasingly see oil staying weak for the foreseeable future.
On Wednesday, growing worries about a conflict with North Korea, a report of rising stocks of U.S. crude and tame employment data dragged West Texas Intermediate down by nearly three percent – its worst daily showing since November 20. Brent crude, the market's benchmark, also tumbled by more than three percent.
Yet crude's woes have been apparent for weeks. The commodity has languished in tight ranges, barely reacting to a still-tense geopolitical landscape in the Middle East -- which would normally push prices higher -- and a rally that only Tuesday took the Dow Jones Industrial Average and S&P 500 Index to new historical highs. That is curious, given that oil and stocks usually have a relatively tight correlation.
Crude's weakness has prompted a number of analysts to take a dim view to how well Brent and WTI will trade this year, a reversal from the start of 2013 when global growth hopes were set to underpin demand.
A linchpin behind oil's relative stagnation is America's domestic energy boom. Analysts also point to a restarting of a dormant pipeline in the North Sea – a major hub of European oil production – and the overall increase in supply from North America as helping to cool crude prices.
"There's a concern that increased Western Hemisphere oil production in Canada, Mexico and the U.S. are creating prospects for enormous supplies of crude oil," said Richard Hastings, global macro strategist at Global Hunter Securities.
Hastings posited that the shift to shale oil and natural gas is having a preemptive cooling effect on crude prices.
Investors expect that at some point in the unspecified future, the migration to alternative fuels will create oversupply in oil markets, making crude even cheaper than it is now. "The market is starting to get sensitive to this," he added.
On Tuesday, Barclays cut its 2013 Brent forecasts to $112 from $125, and U.S. oil to $95 from $108. The bank cited "a more placid geopolitical environment" and surging U.S. domestic production, a key reason behind why U.S. commercial inventories are near 390 million barrels – their highest since 1990.
Citing "structural factors" like more oil exports from Africa and changes in oil consumption incentives from South Korea, Bank of America-Merrill Lynch expects WTI to sink to $92 by year's end, and $90 in 2014.
Additional factors that could further undermine crude prices are the gradual improvement of an oil bottleneck in the U.S.'s Cushing hub, and expected supply from the controversial Keystone Gulf Coast Project, which BofA estimates could produce as much as 700,000 barrels per day.
All of which could eventually lead to much-needed relief at the pump for consumers. The national average for gasoline is expected to hit $4 by May, but falling oil prices may help elongate that timetable, market observers say.