Lagging Demand Puts Crude Below $40

"This all supports the demand deterioration argument we've been talking about for months," said Jim Ritterbusch, president of Ritterbusch and Associated.

"In hindsight this pop from $35 to $50 was a normal market correction within a bear market," said Ritterbusch, who looks for prices to head back down toward last month's lows in the next few days.

Oil prices at one point Tuesday reached $50.47, the highest price since Dec. 1, before the continuing raft of lousy economic news took hold.

First, it the National Association of Realtors reporting that pending home sales fell to the lowest level on record in November. Then the government reported that orders to factories fell for a record fourth straight month in November.

On Wednesday, prices fell 12% after the Energy Information Administration said that crude oil inventories rose 6.7 million barrels, well above the 1.5 million-barrel build expected by analysts, followed by Friday's unemployment news.

Rising U.S. inventories show just how badly demand for energy has eroded.

But Peter Beutel of Cameron Hanover said in his Friday report that despite the bearish news, he is looking for prices to stabilize, helped by the government's stimulus packages, interest rate cuts in the other countries, low mortgage rates in the U.S., historically low refining rates in the U.S. and the start of refinery maintenance, and OPEC production cuts.

Heating oil prices also continued to move lower even with the forecast of a major winter storm from the Midwest into New England that could dump up to 8 inches of snow by Saturday night.