Oil and gasoline futures plunged Monday, on concerns about the economy's health and as investors sold to lock in profits from last week's record-setting rally.
September oil fell more than $3 a barrel, and gas futures slid more than 10 cents to settle below $2 a gallon. Both contracts extended declines that began Friday after the government issued weaker-than-expected employment numbers. That data added to the sentiment of a series of other government reports analysts say suggest the economy might be slowing.
U.S. light, sweet crude (delayed) for September delivery fell $3.42 to settle at $72.06 a barrel on the New York Mercantile Exchange. The contract has fallen more than $6 from the intraday price record of $78.77 it set last week.
September gasoline was off 10.31 cents to settle at $1.9259 on the Nymex.
And London Brent crude (delayed) for September fell $3.58 to settle at $71.17 a barrel on the ICE Futures exchange.
"The weaker ... numbers are raising the prospect of softening U.S. commodity demand in general, and energy demand in particular," wrote MF Global UK analyst Ed Meir in a research note.
But investors are also taking profits from the rally that sent oil prices to record levels last week, analysts said.
"It's all related to the [investment] funds dumping a portion of their long holdings," said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill.
Analysts were split, however, on whether the steep price declines of recent days portend the beginning of a sustained drop in energy prices.
"I don't think this marks the beginning of the end," said Ritterbusch, who expects oil prices to rise to $80 this fall. "It's just a deserved correction in a bull market."
Others disagree, arguing that oil prices are headed for a fall slide that could take prices down to the $60 range.
The selling wasn't limited to gasoline and oil. In other Nymex trading, September heating oil lost 9.47 cents to settle at $1.9393 a gallon. But Nymex natural gas gained 11.8 cents to settle at $6.208 per 1,000 cubic feet on forecasts for hotter weather, and thus more demand for cooling, in the Northeast.
At the pump, meanwhile, gas prices also extended their declines, falling 2 cents over the weekend to a national average of $2.838 a gallon, according to AAA and the Oil Price Information Service. Retail prices, which typically lag the futures market, peaked at $3.227 a gallon in May. At that time, gas futures were rallying on concerns about the refining industry, which struggled all spring with maintenance issues and unplanned outages.
In recent weeks, refineries have boosted capacity and output, alleviating those concerns. Gas futures and retail prices have been falling for weeks.
Contributing to Monday's sell-off was data released Friday that showed speculative buying of oil contracts hit a record in the week ended July 31. Some investors worry speculation has driven prices to an unsustainable level, and have started to sell their positions, analysts said. Others, including many big investment funds, simply sell portions of their holdings to lock in profits when prices hit certain levels, Ritterbusch said.
Valero Energy Corp.'s report Monday of a weekend fire a Port Arthur, Texas, refinery did little to stop the slide.
"That's just another tip-off of a bearish situation, when the market fails to respond to bullish news," Ritterbusch said.
Valero later said there would be no effect on production.
Contributing to the day's bearish tone were the latest export numbers from the Organization of Petroleum Exporting Countries, which showed OPEC exports rose in July for the fifth consecutive month.
From here, some analysts expect a repeat of last year, when oil prices dropped nearly $20 between early August and early October.
"Prices across the spectrum are likely to fall further from current levels as we move into the second half of the year," wrote Jason Schenker, an economist at Wachovia Corp., in a research note.
Others disagree, noting that global demand remains strong.
"The scope for any extended period of weakness looks limited in our view," wrote Barclays Capital analyst Kevin Norrish in a research note.