Oil stocks have been slammed even harder than the overall stock market.
A combination of changing oil-industry fundamentals, the credit crisis and massive liquidations of hedge fund and mutual fund portfolios are behind the plummet.
Meanwhile, OPEC is scrambling to cut its crude-oil production to stem what it calls "a dramatic collapse" in oil prices
For the consumer, prices at the pump may slip further and are unlikely to return to previous highs for a while. For the investor, experts say, there are opportunities to buy oil stocks at prices far lower than the value of their underlying businesses.
Back in August, Dennis Gartman, editor of the Gartman Letter in Suffolk, Va., correctly predicted that oil prices were about to slide. He doesn't think that slide is over yet.
"Oil prices are probably headed lower still, because that commodity's history is that once it starts to go lower, it continues to go lower," Gartman said. "The deciding factor driving oil prices higher had been the restocking of the crude-oil reserves of the U.S. Strategic Petroleum Reserve, and once that was topped off, prices began to come down."
The U.S. Strategic Petroleum Reserve stores emergency supplies of crude oil for the country. It made emergency releases of oil in the wake of hurricanes earlier this year, then restored its inventory to a higher level than before. This government complex of deep underwater storage caverns is located in salt domes along the Texas and Louisiana Gulf Coast.
Many endowment and pension funds had been advised by financial consultants that they should be in the commodity markets, Gartman said. Once those investments began losing money, however, they abruptly headed for the exits.
No one is saying the threat of higher oil prices is over forever, but prices are definitely in a lull.
"I think that oil prices are likely to bounce between $60 and nearly $100 a barrel, but I doubt we'll face triple digits in the next 12 months," said Tim Parker, energy analyst with T. Rowe Price in Baltimore.
Sometime in the next three years, oil prices will likely be back at higher levels again, Parker expects, since the United States hasn't fixed the problem of dependence on foreign oil.
"Gasoline prices at the pump should be headed down to $2.50 a gallon, depending on where you are in the country," Parker said. "As oil prices head back toward $100 a barrel, pump prices will be between $2.50 and $3, but won't be $3.50 a gallon until oil prices are at $120 or $150."
But realize that energy issues aren't going to go away.
"We've lowered our oil forecast for 2008 to $105 a barrel, which means oil would have to average around $80 a barrel in the fourth quarter," said Philip Weiss, oil analyst with Argus Research in New York. "For 2009, we have an estimate of $90 a barrel on average, with supply and demand the key factors."
Oil stocks have been hit too hard, Weiss said. Although oil prices aren't much higher than three years ago, more than half the oil stocks Weiss covers are trading at lower prices now than they were then.
"My tendency has been to upgrade stocks in this environment," Weiss said. "If you're a long-term investor looking for undervalued stocks, the oil sector is a good place to go because we've had an irrational correction."
Whether stocks or commodities, in the current topsy-turvy investment world it is difficult to make exact predictions. Up or down is about the best any expert can do.
"I've been at this for 35 years and have learned that if I tell someone oil prices are going lower, say to $55 a barrel, and it goes to $58, I look like an idiot," Gartman said. "The only thing that makes you look wise is to say that it looks like the trend is down."