Oil prices slid further on Friday, pushing this week's drop to nearly $2 a barrel as they fell below $23 for the first time this year.
But traders and analysts, fearing a rerun of last year's late winter rally, seem reluctant to predict an end just yet to oil's lengthy bull run.
"In a volatile market like this, we can head to the roof one day and be at the floor another. But you cannot sell short until the winter is over. It would be a market suicide," said Bo Van
Wijk, vice-president, energy risk management, at UBS in Zurich.
North Sea Brent crude oil futures traded in London hit a low of $22.65 on Friday morning, down a hefty 58 cents from the close on Thursday when the market lost a further 86 cents.
Milder weather in Europe and a steady buildup of heating oil stocks on both sides of the Atlantic has led some traders to sell contracts built up when fears mounted that inventories would be insufficient during the peak winter demand period.
But while winter temperatures in key European and the US consumer regions have kept demand for heating oil buoyant and inventories low, traders said oil markets were jittery at recent highs.
"There is a general feeling that sufficient supplies exist to cover the winter since stocks are now very close to a year ago but this may be a little complacent," said analyst Leslie Nicholas at broker GNI.
According to the American Petroleum Institute (API), US, distillate stocks (heating oil and diesel) are starting to build after hitting a low of almost 20 million barrels in August. But they still remain 350,000 barrels below last year.
The lean stock situation, a result of oil company tactics to slim down stockpiles to cut costs and free up capital for investments, has kept a flame under oil prices since mid-1996.
Ironically, a similar market scenario was seen this time last year when Brent gave up nearly $2 between January and February as traders wrote off the winter, only to surge once a record-setting Arctic blast hit the Northern Hemisphere.
"I was sobered up when I saw that it was precisely the same week last year that this happened. After seeing a fall of $1.50 to $2.00, we were all quick to predict a collapse in the price.
I will not make that mistake this year," said Peter Bogin, associate director at Cambridge Energy Research Associates (CERA) in Paris.
The extent of this week's selloff has surprised some market-watchers who expected forecasts of cold weather in the US Northeast, the world's largest heating oil consuming region, to keep a floor under prices.
Though few oil pundits predict an imminent price collapse, most seem to agree that the recent drop was needed, given supply-demand fundamentals.
"There are obvious reasons why the Brent price can't remain at $24 or $25. We see a lot more crude coming onto the market," CERA's Bogin said.
CERA estimates that about 2.4-2.5 million barrels daily of extra oil production will hit the market by the end of 1997 although demand will also be buoyant.
"We tend to think the market can absorb a lot of this crude demand so we are not looking for a total crash in the price," Bogin said.
It may be winter but, in typical oil market fashion, traders are already wondering whether gasoline stocks are sufficient to cover the summer driving season. "The market is now awaiting the gasoline season, which will be important for the next price move," said Tim Holmes of brokers MeesPierson Derivatives.
The API says gasoline stocks in the motor-crazy United States are more than nine million barrels below a year ago and many refineries are heading into spring maintenance shutdowns.
"The gasoline shortfall against a year ago is now being talked about, especially because this month's refinery maintenance in the (U.S.) Gulf is fairly heavy," Nicholas said.
