US$40 a barrel of oil?

HOUSTON: The price for regular gasoline tumbled below US$2 a gallon (53 cents a liter) Friday, its lowest point in more than three years, and crude oil futures edged higher in volatile trading.

On the New York Mercantile Exchange, where oil futures seemed destined to breach $200 just a few months ago, pessimism was an understatement.

"At this point, all we can say with any degree of confidence is that crude oil ... will not trade below zero,'' trader and analyst Stephen Schork said Friday in a tongue-in-cheek analysis of the market's swoon.

Crude has been in free-fall, shedding two-thirds of its value since July, and gasoline prices have followed.

Some say oil could be headed below $40 a barrel.

Light, sweet crude for January delivery rose 51 cents to settle at $49.93 a barrel on the New York Mercantile Exchange.

Earlier, in electronic trading, the price dipped to $48.25, the lowest level since May 18, 2005.

In London, January Brent crude rose $1.17 to settle at $49.19 on the ICE Futures exchange.

Friday's activity reflected just how closely oil traders have gauged the mood in equities markets over the past several weeks.

Wall Street moved higher Friday, with investors taking a breather from the heavy selling of recent days.

Energy and utility stocks showed some advances.

It was a different story earlier in the week.

The Dow plunged Thursday after the Labor Department said new applications for jobless benefits exceeded analyst estimates and rose to the highest level of claims since July 1992 and investors grew even more leery about the health of the nation's biggest banks.

Benchmark crude trailed Wall Street, falling as low as $48.50 a barrel.

In a note to clients Friday, Tudor Pickering Holt & Co. Securities said economic concerns are clearly trumping any further production cuts by the Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global supply.

OPEC lowered production quotas by 1.5 million barrels a day last month, and some analysts predict even lower levels to come out of the cartel's next official meeting Dec. 17.

Such action "may not matter until folks have more visibility/comfort on (the) demand side,'' the Tudor Pickering note said.

Oil prices have been crushed as the global economic downturn has diminished demand.

How low prices can go is anyone's guess.

"Do not trust anyone in this market who tries to convince you that oil cannot go below $40,'' Schork said in his report Friday.

"The same way no one had a clue how high prices could go last July, there is no telling how low we can go now.''

Meanwhile, the pump price for regular unleaded gasoline fell 3.1 cents overnight to $1.989 a gallon, according to auto club AAA, the Oil Price Information Service and Wright Express.

That was the lowest since March 9, 2005, when retail gas cost less than $2 a gallon.

In other Nymex trading, gasoline futures rose 5.7 cents to settle at $1.0643 a gallon.

Heating oil gained 2.37 cents to settle at $1.6996 a gallon while natural gas for December delivery advanced 16.4 cents to settle at $6.532 per 1,000 cubic feet.