Oil slides as weather warms, stocks slide

By Blake Ellis, contributing writer

NEW YORK (CNNMoney.com) -- Oil slipped to $78 a barrel on Friday on warmer weather and as stocks retreated.

What prices are doing: Crude oil fell $1.39 to settle at $78 a barrel after diving as low as $77.70 earlier, marking the fifth day of retreats. Oil prices have dropped over 5% this week.

On Thursday, oil fell 26 cents to $79.39 a barrel as the cold snap ended across much of the country.

What's driving prices: Stocks lost ground Friday despite better-than-expected earnings reports from JPMorgan Chase and Intel.

Investors are worried that companies such as JPMorgan Chase and Intel may be overvalued, said Chris Lafakis, an associate economist at Moody's Economy.com.

Similarly, the gains oil made last week could only last so long, he said.

"People feel that prices and stock might have advanced to much," he said. "There's that same sense with oil -- maybe we're moving too far, too fast."

Prices were also affected by warmer weather since demand for heating fuel declines as temperatures rise, said Lafakis.

"Temperatures have warmed up a little bit across the eastern U.S. and in the midwest," he said. "We use a lot of heating oil to get by in the winter, so a 10 to 15 degree increase will suppress the need for heat."

Earlier, prices were also pressured by a stronger dollar, which was rising against the euro and the pound as investors sought a safe haven.

What analysts are saying: "I think the oil bubble is burst right now, we're over-done and too high-priced," said Dan Flynn, an energy trader at PFG Best..

Looking ahead, Flynn expects oil to fall significantly, and he said prices could drop as low as $40 within the next week.

"It has been range-bound, but crude oil could lose some premium," he said. "Once it reaches a plateau at $40, then we could probably start to see it rise." To top of page

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