Oil dropped to $49.62 a barrel on Thursday as demand for the commodity continued to fall. It was oil’s lowest price since May 2005. Oil is feeling the pressure from the combination of turmoil in the financial markets, the downturn of the American and Chinese economies and cutbacks by developing countries in energy subsidies.

By Mark Williams

COLUMBUS, Ohio (AP) — Oil prices continued to fall Tuesday as a government report showed that gasoline prices in October plunged further than they ever have and home heating oil, natural gas, and liquefied petroleum gas fell substantially.

Light, sweet crude for December delivery fell 56 cents to settle at $54.39 a barrel on the New York Mercantile Exchange. But there were signs that plummeting gas prices have begun to bring American motorists back to the pump.

MasterCard SpendingPulse reported Tuesday that even though consumption of gas for the weekend ended Friday was down 2.8 percent from a year ago, it the smallest year-over-year decline in more than two months. Americans used nearly 1 million more barrels per day of gas for the week than they did the previous
week.

“Demand destruction has definitely subsided significantly,” said Michael McNamara, a vice president at MasterCard SpendingPulse.

The Labor Department reported Tuesday that wholesale energy prices dropped by 12.8 percent in October, the biggest one-month fall since 1986. All types of fuel declined, with gasoline falling by a record 24.9 percent, also the biggest drop since 1986.

Home heating oil prices fell 9.6 percent, natural gas intended for home uses fell by 5.9 percent, and liquefied petroleum gas dropped by 27.6 percent, the biggest decline in more than three decades.

Energy investors trade in technical ranges, however, and Flynn said if crude prices do fall below $50, oil could be in for another round of selling that could drop the price to $40 per barrel.

Outside of the Nymex trading pits, the remarkable decline in
prices has played out at the corner gas station, with Texas,
Minnesota and Colorado joining Ohio in the last week as states
where average retail gasoline prices fell below $2, according to
the Energy Information Administration.

Nationwide, retail gasoline prices in the U.S. fell for an 18th
week since the July 4th holiday. Prices plummeted 15.2 cents, or
7.3 percent, to a national average of $2.072 a gallon, according
to the IEA. Prices are down more than $1 from a year ago.

Prices at the pump fell nearly 2 cents overnight to $2.068
nationally, according to auto club AAA, the Oil Price
Information Service and Wright Express. Prices have fallen
almost 90 cents in the past month.

With high prices no longer as big of a concern and with no
hurricane activity, it is mostly the weak economy that is
keeping demand lower, McNamara said.

Some market analysts believe that crude prices are steadying
with more investors comfortable buying oil in the mid $50 range.
Crude prices have fallen 63 percent since reaching a record
$147.27 in mid-July.

Many industry executives believe the fallout in the oil markets
is likely to be short-lived.

The head of China’s biggest offshore energy producer said
Tuesday he thinks oil prices are likely to return to a range of
$70 to $80 per barrel, though he did not say when.

CNOOC chairman Fu Chengyu said a conference on Chinese business
in Spain that the current price level is based on a panic, but
would linger until confidence is restored in the market.

With ripples from the mortgage crisis still rippling across the
glob, it is difficult to say when that may happen.

Many industry experts had looked to China and India to continue
buying crude to fuel their booming economies, even if Western
nations entered recession. There are growing indications that
such emerging economies are still closely linked to the fortunes
of Europe and the United States.

Even outside of Nymex, where the benchmark crude is West Texas
intermediate, exporting nations both within OPEC and in places
like Mexico and Russia are seeing massive declines in crude
prices.

The U.S. is a major energy consumer and demand for gasoline and
other fuels is plummeting fast.

In other Nymex trading, gasoline futures fell 3.78 cents to
settle at $1.1368 a gallon. Heating oil fell 3.31 cents to
settle at $1.7579 a gallon while natural gas for December
delivery fell 1.7 cents to settle at $6.516 per 1,000 cubic feet.

In London, December Brent crude fell 47 cents to settle at
$51.84 on the ICE Futures exchange.