“Less than two weeks after nearing $50 a barrel in the U.S., oil prices have fallen significantly, as feared supply disruptions from around the world have failed to materialize — at least so far,” wrties Thaddeus Herrick in today’s Wall Street Journal.

“Oil prices have been pushed down by a host of factors, including a dip in demand from refineries as they prepare for scheduled plant maintenance. There is also growing confidence that Venezuela and Russia won’t have any big drops in oil production. And the Organization of Petroleum Exporting Countries intends to raise its output of oil as it prepares to meet in Vienna on Sept. 15.”

“Also fueling the decline: Some of the traders who had been betting that oil would soar into the stratosphere are cutting their losses and closing their positions. Such speculators help explain why oil prices rose so briskly into mid-August, and now the speculators are having an opposite effect as they head for the sidelines.”

“On the New York Mercantile Exchange, U.S. benchmark crude for October delivery fell 16 cents yesterday to settle at $42.12 a barrel. In inflation-adjusted terms, the price is about half the level it reached in 1981.”

“The broader factors that helped push oil to new highs persist. The price of oil is about 30% higher than at the end of 2003, and analysts say strong growth in demand coupled with the inability of producers to bring significant new oil onto the market will likely result in price spikes in the months ahead.”

“Political turmoil in any of a number of the big oil-exporting countries could send prices soaring. ‘We’ve moved into the eye of the hurricane,’ says Larry Goldstein, president of the Petroleum Industry Research Foundation. ‘But the storm is all around us.’ ”

“The stormy scenario is likely to persist as long as the world maintains its brisk growth in oil demand of 3.2% a year, well above the pace of 2% or less seen through much of the past decade, according to the International Energy Agency of Paris. The world consumes about 80 million barrels of oil a day.”

“China, which is now the second-largest oil market, behind the U.S., continues to boom. But in the U.S., consumer-confidence data and a regional manufacturing report released yesterday suggest the economy may in fact be weakening, partly because of high oil prices. That, in turn, could slow demand growth in the U.S., which consumes 20 millions barrels a day, or about a quarter of the world’s consumption.”

“Last week, large-scale speculators slashed their net long position in Nymex crude-oil futures and options, according to the Commodity Futures Trading Commission. Traders now are focused on weekly inventory data to be released today that could show weakness in gasoline demand, putting additional downward pressure on oil prices. Gasoline inventories are at the high end of five-year averages.”