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Crude Oil Continues Slump

Simon Constable

Oil was sliding Thursday as unusually mild winter weather kept buyers planted firmly on the sidelines.

Light, sweet crude was slipping $1.93 at $56.39 a barrel on the New York Mercantile Exchange. Nearby gasoline futures were drooping as well, off 4.28 cents at $1.5061 a gallon.

Stocks of crude oil fell to 319.7 million barrels as of Dec. 29, a dip of 1.3 million barrels from the prior week, according to new data published by the Energy Information Administration. The organization also says gasoline inventories rose to 209.5 million barrels from 203.9 million for the same periods.

"What we are seeing in the oil market is that unseasonably warm weather has changed the outlook among many traders and economists," says Joseph Brusuelas, chief U.S. economist at IDEAGlobal in New York. That has led some investors to become less bullish on prices than they were in the recent past, he says.

Still, others see the current pullback as a temporary phenomenon. With continued economic growth in China more than offsetting any U.S. slowdown, the crude oil market looks like it will be tight this year, says Kurt Karl, chief U.S. economist at Swiss Re in New York. He's still expecting prices to end 2007 in the range of $65 to $70 a barrel, although he believes a lull will likely continue for a while.

In the energy patch, Sun Trust upgraded shares of Compton Petroleum(CMZ Quote) to neutral from reduce, but traders shrugged and the stock was down 3% recently.

Among the majors, Exxon Mobil(XOM Quote) and BP(BP Quote) were 1.4% and 0.8% off, respectively, pulled lower by the decline in the price of crude.

The oilfield services complex took a minor hit after Calyon Securities lowered its opinion of a few names in the sector. It reduced Weatherford(WFT Quote), Grant Prideco(GRP Quote) and Smith International(SII Quote) to add ratings from buys. The shares were declining between 1.7% and 5% recently.

Calyon also cut Bronco Drilling(BRNC Quote) to neutral from buy and Halliburton(HAL Quote) from add to neutral. Shares were lower by 7% and 1.7%, respectively.