Updated from 3:27 p.m. EST

Energy 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.

" Crude inventories still remain above the average range, even after the latest draw," the EIA said in an analysis on its Web site. "There was plenty of crude oil available to draw upon."

The price-dip already has damaged sentiment among the energy bulls.

The Bullish Consensus for oil now reads only 50%, says Rich Ishida, president of Pasadena, Calif.-based MarketVane, which publishes the sentiment indicator. That figure is the lowest in the past 12 months, and marks a fall from 60% at the end of 2006.

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%.