Oil's Two-Session Loss Is 7%

Updated from 1:46 p.m. EDT

Oil prices fell sharply for a second day Thursday, after a host of bearish supply and demand reports this week flashed sell signals across trading floors.

June crude closed down $1.91 at $48.54 a barrel on Nymex, falling out of its trading range of roughly $50 to $55 a barrel. The contract has lost about 7% since Tuesday's close. Gasoline futures dropped about 5 cents to $1.43 a gallon.

Falling oil prices triggered a selloff of major oil producers' shares. The Amex Oil Index fell 3.67%, led by a 4% decline in Exxon Mobil (XOM).

Prices were pressured by Wednesday's government report showing crude inventories in the U.S. rose by 2.67 million barrels last week, nearly twice the expected rate. Gasoline inventories added 187,000 barrels, compared with expectations for a 900,000-barrel gain.

"We will probably be seeing a delayed reaction to rising inventories in the next 15 to 20 days as traders digest the builds. Prices are likely to hit $45 a barrel in the next month," said John Person of the National Futures Advisory Service, a consulting firm in Palm Beach, Fla.

Phil Flynn, senior market analyst at Alaron Trading, said that the "fear premium seems to have been removed from prices, and all the concerns about whether we will have enough oil before the driving season have disappeared." Still, Flynn warns from getting out the "bulls' obituaries" just yet.

Crude inventories, which have risen 12 of the last 13 weeks, are currently at their highest level in three years, at 329.7 million barrels. Demand, on the other hand, might be slackening.

While demand in the U.S. grew by a robust 2.4% in 2004, the Energy Department said in an outlook report Tuesday that demand growth should be just 1.7% in 2005 and 1.9% in 2006.

Growing supply vs. a slowdown in demand might look like the right formula for easing oil prices, but many analysts and economists believe supply and demand fundamentals are not the major force steering near-term prices. Speculative trading and concerns over uncertain spare capacities are.

The International Energy Agency, a private oil market watchdog, said Wednesday that demand growth from China, the U.S. and Europe are showing signs of a slowdown. According to the agency's report, OPEC crude supply rose by 480,000 barrels in April to 29.4 million barrels a day, led by increases in production from Iran, Saudi Arabia, UAE, Kuwait and Nigeria.

In the first quarter, however, Chinese demand grew by only 4.5%, compared with a 19.3% jump in the same period a year ago, the IEA said.