For all those who didn't beleive specculation was behind the lastest oil price spike...

Oct 14, 2008 (San Gabriel Valley Tribune - McClatchy-Tribune Information Services via COMTEX) -- Oil at $50 a barrel? Gasoline for $2.50 per gallon?

It sounds absurd in light of the price hikes and economic turmoil we've weathered over the past several months, but more than one industry analyst figures we're headed that way.

Fadel Gheit, managing director of oil and gas research for Oppenehimer & Co., says the nation's sky-high crude prices have been fueled solely by market speculators.

But with banks now pinched by the credit squeeze, nearly all of that speculation has fallen by the wayside.

"Oil prices are headed lower and I wouldn't rule out it going below $50 a barrel ... but I wouldn't bet on it either," Gheit said.

"I've never seen anything like it. Increases over the past two or three years have been driven by speculation. And the people who manipulated oil prices are the same ones who created the toxic financial assets that created our global financial crisis."

Oil prices clawed back above $80 per barrel Monday, rebounding from a 13-month low as a stepped up global effort to rescue world financial markets lured investors back into equity and commodities markets.

On Monday, light, sweet crude for November delivery rose $3.49 to $81.19 per barrel on the New York Mercantile Exchange, after earlier rising as high as $82.52.

Prices were also supported by a weaker dollar and expectations that OPEC countries may tighten production in a bid to slow crude's precipitous decline.

Prices have fallen about 45 percent since shooting to a record $147.27 July 11.

Last week, crude tumbled more than $16 to levels not seen since September 2007, with more than half the losses coming on Friday alone.

"At this point, you've got the Morgan Stanleys and Goldman Sachs of the world all running to the sidelines," petroleum industry analyst Bob van der Valk said. "The speculators have gotten out of the market. There have been restrictions placed on credit and that affects everything. You end up with no money to invest."

The removal of that element from the equation has put the crude oil market back on a more realistic track. he said.

"We're getting back to what we're using and what we're making ... and right now we're making more than we're using," van der Valk said.

Part of the nation's excess inventory can be tied to the fact that U.S. refineries have converted from summer-grade to winter-grade gasoline.

Refineries are able to generate more gasoline per barrel of oil when producing winter-grade fuels, van der Valk said.

"We make about 10 percent more gas in the winter," he said.

And that equates to lower prices at the pump. In fact, van der Valk figures we'll see $2.50-a-gallon gas by year's end.

"The only thing that could hike prices up again would be something like an armed conflict with Iran or Russia," he said. "But right now, everything on the horizon is looking good."

Gheit said world events would have hiked oil prices back up again if not for speculators pulling out of the market.

He cited Russia's invasion of Georgia and hurricane damage to refineries in the Gulf of Mexico as two factors that should have driven prices north again.

"But oil prices came down sharply because they were sharply inflated," he said.

Goldman Sachs cut its year-end crude price forecast from $115 a barrel to $70, citing the "extreme dislocation" in the credit markets.

The Associated Press contributed to this story.

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