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WASHINGTON - A week ago, many energy traders and analysts spoke of $50-a-barrel oil as almost a sure thing. Now that crude futures have slid 11 percent from their recent peak, settling at about $43 on Friday, reaching the half-century mark any time soon is considered more of a long shot.
More interesting, perhaps, is that over the past seven days not much has really changed in terms of global supply and demand.
So, was there an oil-price bubble? And, if so, has it popped?
With hindsight proving to be quite good, most market participants and industry experts say this summer's rally fed heavily on fear-induced hype. Sure, a thin global supply cushion leaves little margin for error, but there are no fuel shortages. Meanwhile, high prices - gasoline peaked above $2 a gallon this summer - should gradually help bring more oil into the market.
Yet while the retreat in prices may continue, experts said it is not because the building block of the bubble - the threat of a major supply mishap - is entirely gone or forgotten.
Instead, a subtle psychological shift appears to have taken place in the market, in which dire interpretations of global uncertainties have been toned down and the obsession with daily economic and political news has been layered with a longer-term perspective.
"It reflects the fact that some of the hysteria of the moment is diminishing," said William Ferer, president and director of research at W.H. Reaves, a New Jersey firm that invests in the oil sector.
This has led to a lot of profit-taking by institutional investors, whose speculative bets helped propel prices higher, traders and analysts said. And more important, as the fear factor recedes a little bit - thanks, in part, to a new peace deal that ended three weeks of fighting in Najaf, Iraq - market participants have come to the conclusion that prices soared too high, too fast late last week.
Conversations with brokers revealed that they are stepping back to assess potential supply problems more critically and on an individual basis, rather than lumping them all together, which tends to result in a more emotion-laden analysis.
For example, the legal and financial troubles of Russian oil-giant Yukos had earlier this month prompted some oil traders to publicly fret the possibility that Yukos' daily oil production of 1.7-million barrels could all but disappear from the global supply chain. Today the still-unresolved affair stirs more modest fears, as experts agree that any drop in Yukos' export capabilities would likely be made up by one of its Russian rivals.
The other component of this mind-set shift was on display this week when neither sabotage against Iraqi oil pipelines nor government data showing declines in U.S. oil supplies caused futures prices to rise.
On Friday, light crude for October delivery rose 8 cents to $43.18 on the New York Mercantile Exchange. On Aug. 19, Nymex crude futures settled at an all-time high of $48.70, although when adjusted for inflation, prices remain well below the level reached in 1981, following the Iranian revolution.
Not everyone is convinced oil-market participants have bid farewell to hype and speculation.
"I'm not sure what the mind-set of the market is these days," said Tom Kloza, director of Oil Price Information Service in Lakewood, N.J. "It's been so bipolar lately that I'm not sure it's properly medicated."
Still, even those like Kloza who assert that the August run-up in oil prices was as much of a bubble as the waning days of the 1990s dot-com boom acknowledge that energy markets around the world face a number of constraints and threats that are likely to keep prices higher and more volatile in the year ahead:
There is a thin margin of spare output capacity - about 1 percent - leaving little buffer against any loss in a global supply chain that consumes roughly 82 million barrels a day.
Even with the latest peace deal in Iraq, analysts believe tensions there could flare up again, leaving oil infrastructure vulnerable to sabotage.
The global terror threat places a premium of at least a few dollars on crude futures.
Refining capacity in the United States has not kept pace with the growth in gasoline demand, placing greater importance on imports and, therefore, leaving the country more vulnerable to supply interruptions.
But many economists say the surge in oil demand, which caught the Organization of Petroleum Exporting Countries and most others by surprise earlier this year, has begun to taper off as a result of soaring costs. Oil has cost more than $32 a barrel all year, a level many believe could be the norm for the foreseeable future.
Economists also believe that exploration and production activity spurred by the high price will eventually deliver enough new supply to stay ahead of the growth in demand.