Crude Futures Lower Again

Updated from 1:47 p.m. EDT

Crude prices staged a sharp reversal Friday, heading lower as traders weighed evidence that high prices are sapping demand.

After jumping earlier, the October crude contract, which has lost about 8% since the International Energy Agency announced it would supply the U.S. with emergency oil, closed down 41 cents to $64.08 on Nymex. Gasoline futures dropped 8 cents to $1.95 a gallon.

Gasoline prices dropped more than $1 this week after reaching an all-time high of $2.925. "Last week we had a panic reaction to the upside; this week was a panic reaction to the downside," said Tom Kloza Chief, an oil analyst at OPIS.

"There seems to be a sentiment in the market that U.S. motorists may flee from gas stations and change their behavior," Kloza said. "My gut feeling is that won't happen. Retail prices will come down to well below $3 a gallon by next week."

Kloza believes gasoline futures have peaked. "My suspicion is that will be like the Nasdaq all-time high; we won't approach it again for a long, long time."

Scattered data recently suggested that higher fuel prices are curbing consumption. The International Energy Agency said in its monthly oil report that global crude demand in 2005 will average 83.45 million barrels a day, which is 250,000 barrels a day fewer than it forecast in the previous report.

Supporting oil prices earlier was Royal Dutch/Shell's(RD Quote) report that about 40% of its Gulf of Mexico production will not be restored until 2006.

"Pending full assessment and evaluation of infrastructure and assets, it is expected that about 60% of total production will be restored to pre-hurricane levels within the fourth quarter of 2005," the company said. "The situation with respect to the remaining production, mainly from the Mars and Ursa area, Mensa, and Cognac, is still being assessed, but production from these facilities may not be feasible during the fourth quarter."