Oil prices take a big drop, but diesel hits a new high

NEW YORK - Oil prices fell yesterday, pulling back at least temporarily from record levels as investors feared that the financial crisis that forced the sale of the Bear Stearns Cos. Inc. was a sign of deep economic trouble.

Crude's drop came even as diesel prices rose to a new record above $4 a gallon, and gasoline prices remained high.

Diesel, used to transport the vast majority of the nation's goods, rose 1.3 cents to a national average of $4.002 a gallon, according to AAA and the Oil Price Information Service. The national average price of a gallon of gasoline, meanwhile, dipped slightly to $3.283 a gallon, but remained 73 cents higher than a year ago.

In the five-county Philadelphia area, yesterday's average pump price was $3.22 a gallon, up four cents in the last week. In South Jersey, the average was $3.04, six cents higher than a week ago.

Oil's steep decline - falling $4.53 to settle at $105.68 a barrel on the New York Mercantile Exchange - came hours after futures had reached a new trading high of $111.80 on the Federal Reserve's move Sunday to lower a key interest rate a quarter of a percentage point.

In the last several months, Fed rate cuts have prompted rallies in oil prices because crude futures offer a hedge against a falling dollar. Interest-rate cuts tend to weaken the dollar further.

But the big decline yesterday could be a sign that the oil market's momentum has turned negative, analysts said.

"People are saying, well, things are a lot worse than we thought," said Phil Flynn, an analyst at Alaron Trading Corp., of Chicago.