Oil ended trading on the New York Mercantile Exchange at $55.59 a barrel, down $2.73 on the session, after losing another $2.73 Wednesday. Darin Newsom, senior commodities analyst at DTN in Omaha, Neb., says the decline points to a condition that existed for most of 2005 and 2006 — that of the later-dated futures contracts costing more than the current futures contracts, which suggests the market is flush with supply.

This condition, known as “contango,” means refiners and other market participants are buying and holding oil to sell it down the road, and that they’re not worried about current supply. It means it wasn’t the oil industry driving crude higher — it was investors and speculators, who are now selling. This lines up with data from the Commodity Futures Trading Commission, which shows that while non-commercial traders (funds and other investors) held long positions in oil all throughout 2006, commercial traders — people actually involved in the industry — have been short on a weekly basis going back to May 2005. “It was a house of cards — there’s a huge amount of investment money in it,” Mr. Newsom says.