Analyst view: Gasoline slump triggers second big oil fall

NEW YORK (Reuters) - A deep fall in U.S. gasoline futures after an unexpected rise in weekly inventories helped fuel the second major sell-off in the oil market in a week, at one point triggering the exchange's circuit breakers.

Crude oil prices had fallen by more than $2 a barrel earlier in the session on a mix of poor Chinese industrial output data and a stronger dollar, but losses accelerated after mid-morning weekly stock data. The slide was not as sharp as the rout that drove oil down over $10 a barrel last Thursday.

The CME-owned New York Mercantile Exchange's (NYMEX) trading limits kicked in as gasoline futures fell by 25 cents, halting trade for 5 minutes. Losses carried on as trading resumed with a new limit of 50 cents. Prices completed erased gains from Monday and Tuesday, when traders bid up gasoline on fears that flooding would hit Gulf refiners.

Here is a selection of views on the sharp slide:

CARL LARRY, DIRECTOR OF ENERGY DERIVATIVES AND RESEARCH,

BLUE OCEAN BROKERAGE, NEW YORK, NY

"I would think that similar to rate hikes in China, the CME should be looking to increase margins again to rein in some of this volatility. The limit down move has been confounding physical players and driving the commercial business to the sidelines. This is leaving major fund players alone to push volume in whichever direction they need to get in or out."

HARRY TCHILINGUIRIAN, HEAD OF COMMODITY MARKETS STRATEGY,

BNP PARIBAS:

"You may have people closing their long positions abruptly as the fundamental data today in the US only adds to the bearish mood set by the previous two weeks of softer economic data. But as you cross certain technical levels, you also have to bear in mind that limit orders can kick in, which in turn extend the liquidation of the long positions.

"If the liquidity is thinner, then it is not surprising to see the price gap down."

PETER BEUTEL, CAMERON HANOVER, CONNECTICUT:

"It was greatly uncertain what would happen to prices this week. But I think that the large gains in gasoline earlier in the week came due to concerns that (Mississippi) flooding could lead to very major refinery outages, along the lines of a post hurricane Katrina situation. Once it became clear that nothing like that would happen, the sellers came back."

"Now the market is back to where it was a week ago, with several bearish factors, and the bullish flooding situation is off the table. The margins have been raised on oil, which is another factor. Quantitative easing is coming to an end, which could be the biggest reason to sell of them all. And demand is falling. The decline in US gasoline demand is getting worse, according to EIA data."

"The economy may not be doing as well as people thought"

PHIL FLYNN, PFGBEST RESEARCH:

"Everything is falling apart. Oil and commodities are on their way down again after they bounced back up this week on concerns over flooding.

Chinese data is showing us strong inflation and there are growing concerns over European economies with Angela Merkel playing hardball with Greece. This has created uncertainty in the market that has led to a price drop.

The market is also suggesting we will not see the worst case scenarios regarding refineries being flooded by the Mississippi River. The outlook has changed and the funds are reflecting what fundamentals are telling them."

GENE MCGILLIAN, ANALYST, TRADITION ENERGY, STAMFORD,

CONNECTICUT

"The gasoline market continues to run crazy. Last week's steep slide has increased volatility in the market, and we are still responding skittishly to that. Often in the period after a crash like that things become a little more volatile.

"The underlying fundamentals haven't changed enough to see this kind of price change. The market is nervous. This push down below $100 suggests the rebound might have been technical and we could fall lower."

JASON SCHENKER, PRESIDENT, PRESTIGE ECONOMICS, AUSTIN,

TEXAS:

"The EIA crude stock build was significant and that adds to market concerns about potential demand destruction as the flooding along the Mississippi River was expected to affect refineries in the region. The increase in gasoline stocks was also bearish, but at this point, I see that demand erosion in gasoline is soft at 2.4 percent in the past four weeks versus a year ago."

HAMZA KHAN, ANALYST, SCHORK REPORT,VILLANOVA,

PENNSYLVANIA;

"The sharp rise in gasoline inventories and the huge build on the East Coast by 3.51 million barrels has most traders concerned considering the refinery outages in the region. This shows demand is really slumping."

MATT SMITH, SUMMIT ENERGY, LOUISVILLE, KENTUCKY:

"I think what we're seeing is a reemergence of fear from last week's drops, and heightened volatility. The triggering factors today have been concerns about Chinese inflation, Greek debt concerns and euro weakness, and the surprise build in US gasoline and rise in crude stocks."

"We have been seeing very large swings as apprehension takes over. RBOB gasoline was down 8.5 percent, but after very large rises earlier in the week."

BILL O'GRADY, CHIEF INVESTMENT STRATEGIST, CONFLUENCE

INVESTMENT MANAGEMENT, ST. LOUIS, MISSOURI:

"The statistics today showed that the U.S. has really soft demand for gasoline. Demand of 9.0 million barrels per day versus 9.2 million last year at this time is very bearish. It's no wonder this market is coming off so hard, so fast."

ANDREY KRYUCHENKOV VTB CAPITAL IN LONDON

"It's all about the EIA numbers today, with gasoline stocks rising because of weak demand, even as refiners were cutting back runs again. Volatility will come down in time, possibly even within the week -- but for right now it's a tug of war between the bulls and the bears.

"The bulls can point that the supply situation hasn't changed and there are still long-term concerns about demand outstripping supply. But in the short-term bears can point to weakening demand in the United States for gasoline."

CHRIS JARVIS, SENIOR ANALYST, CAPROCK RISK MANAGEMENT,

HAMPTON FALLS, NEW HAMPSHIRE:

"With near record high gasoline prices, especially ahead of the peak driving season, consumers are making adjustments to curve soaring prices. As a result, demand continues to weaken considerably year-over-year and against the five-year average.

"Given this, we believe prices are likely to fall further before demand picks back up again with $4 per gallon gasoline seeming to be the price point where consumers throw in the towel."

MICHAEL HEWSON, ANALYST, CMC MARKETS:

"It was triggered by the crude data that came out - US inventories increased by a bigger margin than expected... that was the final domino.