Updated from 3:27 p.m. ESTEnergy prices dropped Wednesday on news of above-normal inventory levels. Spot contracts for light sweet crude slid $1.62 to $54.02 a barrel on the New York Mercantile Exchange, and earlier in the day hit a 19-month low of $53.53. With the drop, oil prices are now down 10% in 2007. Heating oil fell 3 cents at $1.53 a gallon. Gasoline shed 4 cents at $1.43 a gallon. Bucking the trend was natural gas, which rose 13 cents to $6.76 per million British thermal units. The U.S. Oil ( USO) exchange-traded fund slid 4.2%. The PowerShares DB Oil ( DBO) fund was down 4.2%. Weighing on the sector was news from the Energy Information Administration of rising energy stocks. Gasoline reserves were up 1.8%, while distillate fuel oil inventories rose 4%, in the week ended Jan. 5, the EIA said. Crude inventories actually fell 1.6%, but that wasn't enough to stop prices from dropping. The EIA said that bigger factors were at hand. "
Ishida says oil prices could test the psychologically important $50-a-barrel level in the next four to six weeks if the downward trend continues. In addition, Ishida says that natural gas prices may be on the rebound from a considerably oversold position. The natural gas market is now 24% bullish, he says, up from 19% at the beginning of the year. Longer term, at least one observer predicts a retreat in energy prices. Prices should soften to around $45 a barrel in about three years, says Adam Sieminski, chief energy economist at Deutsche Bank in New York. "The real fundamentals don't support $70 or $60," he says. Turning to the oil patch, shares of the major producers were down amid the weaker energy prices. Exxon Mobil ( XOM), Chevron ( CVX) and BP ( BP) all lost more than 1.5%.