Oil tumbles for a second day

NEW YORK (CNNMoney.com) -- Oil prices sank for a second straight day Thursday, leaving its two-day loss at nearly 9 percent, as gasoline inventories rose and the Northeast basked in unusually mild winter weather.

U.S. light crude for February delivery slid $2.73, or nearly 5 percent, to settle at $55.59 a barrel on the New York Mercantile Exchange.

U.S. light crude on NYMEX

The drop was the same amount that oil lost Wednesday, which was the biggest one-day decline in more than a year.

The two-day decline means oil prices have tumbled almost 30 percent from their July highs and leaves the front-month contract at its lowest since mid-November. Prices have been seesawing between $55 and $65 for the last several months.

U.S. crude has lost 8.5 percent since its closing on Dec. 29. The NYMEX was closed over the weekend, as well as Monday for New Year and Tuesday for former President Ford's funeral.

In its weekly inventory report, the Energy Information Administration said crude stocks fell 1.3 million barrels last week. Analysts were looking for a decline of 800,000 barrels, according to Reuters.

But distillates, used to make heating oil and diesel fuel, rose by 2 million barrels while gasoline supplies jumped by 5.6 million barrels. Analysts were looking for a 900,000 million drop in distillates supplies and a 1.5 million build in gasoline stockpiles.

One analyst said given the recent OPEC production cuts, the drop in crude supplies could have been much bigger, and the rise in distillate stockpiles confirmed the effects of warm Northeast weather.

"It's reflective of the abject lack of winter demand," said John Kilduff, an energy analyst at Fimat in New York.

OPEC agreed to cut production by 1.2 million barrels a day Nov. 1, and has agreed to another 500,000 barrel cut slated to begin Feb. 1.

Warm weather was the main driver behind the recent selloff.

On Wednesday the National Weather Service forecast temperatures will remain above normal in the Northeast, the world's biggest heating oil market, for the next six to 10 days.

Other forecasts have temperatures in New York City 10 to 25 degrees above normal over the next 10 days.

Temperatures in the U.S. Northeast have been well above normal all winter, with many experts blaming the El Nino weather phenomenon that formed in the Pacific Ocean in the fall of 2006.

Stocks of big oil companies such as BP (Charts), ExxonMobil (Charts), ConocoPhillips (Charts), Chevron (Charts) and Royal Dutch Shell (Charts) stopped mirroring the drop in crude prices in mid-September and rebounded as traders sought deals in a sector some saw as undervalued.

But recently, they've been tracking closer to crude prices again. Most of the big oil producers' stocks fell Thursday.

________________

Your Home: Is 'going green' worth the cost?

Energy's winners and losers in 2006