Energy futures fell Monday after a tropical depression that moved through the Gulf of Mexico late last week turned out to be a dud.
Oil Refinery in California
But investors also tried to determine if oil futures' recent record-setting run above $80 per barrel had run its course.
"We feel that a substantial amount of speculative froth in the crude market exists and that this ongoing price advance is slowly sowing the seeds for an equally sharp price plunge that could easily negate the past month's price advance," said Jim Ritterbusch, president of Ritterbusch and Associates, in a research note.
Many analysts believe much of oil's recent advance can be attributed to speculators buying and selling crude futures contracts, with no intention of taking delivery. That speculative frenzy received a shot in the arm last week when the Federal Reserve cut interest rates.
Falling interest rates have driven the dollar lower against other global currencies, which makes commodities priced in dollars cheaper to overseas investors.
"It's sort of like Uncle Sam declared a year-end clearance sale," said Phil Flynn, an analyst at Alaron Trading in Chicago.
Data released Friday by the Commodity Futures Trading Commission showed speculators increased their crude futures positions by 22 percent in the week ended Sept. 18, according to Addison Armstrong, an analyst with TFS Energy Futures in Stamford, Conn. Investors sometimes view increases in speculative positions as a sign that the market is overbought and ripe for a decline.
"We believe oil prices are due for a big correction," wrote Oppenheimer analysts Fadel Gheit and Dan Katzenberg in a research note.
U.S. light, sweet crude for November delivery closed 67 cents lower at $80.95 per barrel, nearly $3 below the record $83.90 reached last week.
London Brent crude shed 39 cents to $78.91.
October heating oil fell 2.56 cents to settle at $2.2306 a gallon, while Nymex natural gas futures rose 28.7 cents to settle at $6.367 per 1,000 cubic feet.
Natural gas futures were the only component of the energy complex to rally Monday on concerns about three new tropical weather systems, one located in the southern Gulf, one near the north coast of South America and one in the central Atlantic.
"The hurricane season is not over yet and there are still tropical waves crossing the Atlantic that will need to be watched for development in the coming days," said Olivier Jakob, managing director of Petromatrix in Switzerland.
Jitters about possible disruptions are likely to support natural gas prices going forward, Flynn said.
On Friday, concerns about a tropical depression that was then moving across Florida prompted several gas and oil companies to evacuate hundreds of workers from offshore rigs and suspend about a quarter of the Gulf of Mexico's daily oil and gas production. Workers have since been redeployed and production restored.
At the pump, meanwhile, gas prices dipped 0.1 cent overnight to a national average price of $2.809 a gallon, according to AAA and the Oil Price Information Service. Still, that is 1.2 cents higher than Friday's national average. Many analysts think gasoline will rise 10 to 15 cents over the next week to catch up with oil's recent advance.