NEW YORK - Oil prices resumed their descent Friday, dropping briefly below $116 a barrel as a huge jump in the U.S. dollar and expectations of slowing global demand offset supply concerns over a sabotaged pipeline in Turkey.
With oil losing ground in the marketplace, the cost of roadside gasoline has been creeping down, too. The average retail price for a gallon of gasoline slipped to $3.836 Friday - down about a penny from Thursday, and down about 18 cents from the record high of $4.114 reached July 17.
"We're probably going to see gasoline at the retail level around $3.50 for Labor Day," said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com.
Light, sweet crude for September delivery slumped $3.84 to $116.18 a barrel in late morning trading on the New York Mercantile Exchange, after dipping as low as $115.75. Prices for gasoline, heating oil and natural gas also dropped.
Many analysts have pointed to the $117-a-barrel mark for crude oil as technically significant - a move below this level suggests, they say, that oil's recent slide is more than a brief pullback. Crude peaked at $147.27 on July 11.
"You have to remember that this market has baffled anyone who's used fundamentals or charts. But if you're a chartist, today is the death knell for the possibility of new highs in the market place," said Tom Kloza, publisher and chief oil analyst of the Oil Price Information Service in Wall, N.J.
With the dollar launching a massive rebound against the euro and yen after the European Central Bank and the Bank of England both left their benchmark interest rates unchanged, energy traders found reason to sell - especially since the ECB indicated that there probably wouldn't be any more rate hikes to come.
Higher interest rates make a country's currency more attractive to invest in.
By early U.S. trading, the euro dropped to $1.5042 against the dollar, while the dollar rose to 110.16 yen. The British pound tumbled to $1.9155, reaching its lowest point since November 2006.
The weak dollar had been boosting oil prices earlier this year, because dollar-denominated commodities are often used as hedges against inflation and a falling U.S. currency.
Furthermore, the central banks' actions bolstered the growing belief in the energy markets that economies around the world are slowing alongside the United States, dampening global demand for crude oil products.
"The biggest driving factor now to the downside is the fact that the U.S. economy has a lot of company right now in terms of weakening economic growth," Cordier said, pointing to both China and India.
Oil had risen $1.14 Thursday to close at $120.02 a barrel after Turkey's state-run news agency Anatolia said the pipeline, attacked by the separatist group Kurdistan Workers' Party, could be shut down for up to 15 days. The pipeline can pump slightly more than 1 million barrels of crude oil per day, or more than 1 percent of the world's daily crude output.
In Turkey, pipeline shareholder BP PLC and other oil companies declared what's called a force majeure after the pipeline attack, freeing them of contractual obligations to deliver crude.
"While that is significant, the 'strength' this event supposedly created yesterday was rather insignificant," wrote trader and analyst Stephen Schork in his daily Schork Report, referring to oil's fairly modest price bounce on Thursday.
Nymex front-month crude futures are down about 18 percent from their record high. They are still up, however, more than 60 percent from a year ago.
Earlier this year, Americans were paying about $1.65 billion a day for gasoline at the peak of prices and demand, Kloza said. The country appears to be headed for below $1.5 billion a day now that prices are coming down and demand is slowing, he said, but he pointed out that that's still three times what Americans were paying in 2002.