Oil analysts weren't prepared to call Wednesday's $3 drop in New York crude prices the start of a sustained retreat.

The tumble on the New York Mercantile Exchange (NYMEX) was seen instead as an example of what the market looks like when it is firing on all cylinders and the supply-and-demand situation is in a state of sublime balance, reports UPI.

"This is the scenario traders have been waiting for," says Alaron Trading analyst Phil Flynn as the dust settled from Wednesday's 7.5-percent drop in crude values.

January crude prices crumbled from nearly the start of trading Wednesday when the US Energy Information administration released its weekly inventory report and found that supplies of crude, gasoline and distillate fuels such as diesel and heating oil had increased across the board.

The idea that the US refining sector was flush with crude when relatively mild winter weather was promising to keep heating-oil consumption under control was enough to trigger some hard selling by speculators who apparently decided it was time to unload some of the futures they had accumulated in recent months.

The benchmark West Texas Intermediate crude swooned a stunning $3.64, the biggest drop seen on NYMEX since late September 2001, and settled at $45.49 per barrel. The settlement was the lowest in some two and a half months and was more than $10 below the record high of $55.67 per barrel set Oct 25.

As crude sank, gasoline and heating-oil futures were headed in the same direction. January heating oil lost nearly 9 cents and settled at $1.329 per gallon while gasoline fell 8.3 cents to just over $1.201 per gallon.

The catalysts were the EIA report and the separate inventory survey from the American Petroleum Institute. Both showed that supplies of crude and refined fuels were building, offsetting concerns about stingy early-winter heating-oil supplies and the chronic tightness in the crude market.

The EIA reported a 900,000-barrel increase in the US crude supply, bringing the stockpile up to 293.3 million barrels, which is about average for this time of year. The EIA, an arm of the Energy Department, noted that the total supply had increased despite a slight drop in imports down to 10.1 million barrels per day.

Crude supplies have been within the normal range for the past several weeks, so the bigger news appeared to be the 2.3 million-barrel increase in the supply of distillate fuels, which includes jet fuel, diesel and the heating oil used to keep much of the Northeast warm in the winter.

"With crude oil and petroleum product prices generally declining in November, many oil analysts are wondering if the increase we have seen in oil prices in 2004 is a streak that may be ending," the EIA said Wednesday in its weekly look at the US energy market.

At the same time, labour and political turmoil has simmered down in the major exporting nations of Nigeria, Norway and Venezuela.

OPEC, for its part, has been pumping increasing amounts of crude -- about 1.5 million bpd over the quota, according to published industry reports. Cartel officials said recently that there is spare production capacity available to ramp up output by 1 million bpd if needed, which further eases concerns that a future disruption in supply in one area would crimp the overall global supply.

Still, much of the analysis Wednesday was couched in the idea that just because the supply situation was now in balance, it could nonetheless get knocked off balance at any time and send prices steaming upward once again.

"It does appear likely that despite the inventory increases we have seen in recent weeks, relatively high oil prices will persist, at least throughout the upcoming winter season unless the winter proves to be unusually mild," the EIA said.

--Indo-Asian News Service