Prices to hi $5 a gallon within a year.

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Oil Prices Drop Sharply As Gas Plummets

Thu Apr 7, 1:10 PM ET

By BRAD FOSS, AP Business Writer

Oil futures prices fell more than $1 a barrel Thursday afternoon, following the lead of gasoline futures, and brokers said there appeared to be further momentum lower.


"It's collapsing," said Ed Silliere, a broker at Energy Merchant Intermarket Futures in New York. "The market was extremely overbought."


Light, sweet crude for May delivery dropped $1.45 to $54.40 a barrel in afternoon trade on the New York Mercantile Exchange. After an early decline of nearly 8 cents, gasoline futures recovered some lost ground and were down 4 cents to $1.62.


On Wednesday the U.S. Energy Department said the supply of unleaded gasoline stood at 212.3 million barrels, or 5.5 percent higher than last year. However, gasoline demand remained healthy, up 2 percent from a year ago.


Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures, said he expects high gasoline prices to persist as "people are accumulating inventories before the summer driving season."


The government report also showed that the nation's inventory of crude oil was 317.1 million barrels, or 8 percent higher than last year.


"U.S. oil demand is holding up well, and will help to support prices at lower levels," investment bank Barclays Capital said in a note. "There is ... nothing in the U.S. data to support another push up toward $60 yet."


Emori said the current oil market remains "highly exaggerated," and that if prices followed market fundamentals, they should hover around the low $40 range.


"Although demand still remains strong, supplies are normal, as seen from the U.S. reports," he said. "Even the current spare capacity is not that tight."


The U.S. Energy Information Administration significantly raised its forecast Thursday for gasoline and crude oil prices during the summer driving season, citing strong demand, tight refining capacity and new changes in gasoline specifications.


U.S. monthly average retail gasoline prices are seen peaking in May at a record high $2.35 a gallon, up from a $2.10 peak forecast in the EIA's previous monthly outlook.


U.S. benchmark crude oil prices are seen remaining above $50 a barrel for the rest of 2005 and 2006, the EIA said.Oil Prices Drop Sharply As Gas Plummets