Oil sinks again, but market tries to draw line at $60 a barrel

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The crude oil market looks as if it’s trying to make a stand at the $60-a-barrel level, raising questions about how much lower gasoline prices might go.

Near-term oil futures fell as low as $60.16 in early trading today, as gloom about the global economy triggered fresh selling in raw materials.

The price then bounced up to $63 by 11 a.m. PST, only to fall back again. Futures ended regular trading today at $60.77, down $4.53 from Wednesday -- and the lowest close since March 2007.

‘I think if oil goes below $60, you’re going to see some good buying,’ said Nauman Barakat, senior vice president at Macquarie Futures USA in New York. Energy ‘demand destruction’ from a likely U.S. recession ‘is already built into the oil market,’ he said.

What’s more, he expects airlines and other fuel users to rush in and buy oil futures if prices slide below $60. ‘I think users will be quite happy to step in and hedge at that price,’ Barakat said.

Crude has plunged 58% from its record high of $145.29 a barrel in July as the economy has crumbled and as many speculators have abandoned what had been a wild bull market in commodities.

Falling gasoline prices are the only good news many consumers have been able to take away from the deepening economic mess.

Rick Mueller, director of oil practice at Energy Security Analysis in Wakefield, Mass., said oil could fall into the $50s temporarily, but that he expected the Organization of Petroleum Exporting Countries to step up with more production cuts if that happened.

‘I do think OPEC is going to strongly defend a $60 to $65 price floor,’ Mueller said.

But some analysts think the economic outlook is so grim, oil won’t hold at $60 for long.

‘I think we’re going to $50 to $55,’ said Stephen Schork, an analyst and trader at the Schork Group in Villanova, Pa. ‘I think the economy is that bad.’

As for airlines and other users that may want to hedge their bets by locking in current prices, their track record with hedging hasn’t been so hot, Schork said.

‘If they’re buying at $60, it probably means we’re going to $40.’