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Contract close, drop in gas costs roil oil markets

LONDON -- Oil prices tumbled from their earlier heights yesterday in a volatile session that saw prices climb over $53 before settling lower as investors juggled their positions on the final day of trading for the February contract.

A drop in gasoline prices also contributed to crude's fall, said Antoine Halff, head of Fimat energy research. With plenty of gasoline in inventory, there is less demand for crude oil from refiners.

Gasoline futures fell about 2 cents to settle at $1.3754 a gallon and are down almost 23 cents since the start of the year.

The decline in spot market prices has made its way to gas station pumps: AAA estimates the national average price for regular unleaded at $2.16 a gallon .

Light, sweet crude for February delivery fell 86 cents to settle at $51.13 a barrel in afternoon trading on the New York Mercantile Exchange. The day's earlier rally, which saw the February contract trade as high as $53.44, stalled as gasoline prices sagged.

The February oil contract expired yesterday.

"The contract roll can actually create some volatility," said Stephen Jones, senior consultant with Purvin & Gertz in Houston. "It can go either direction, because people have taken a position that ends up having to be covered. If they're short they have to buy to meet that obligation, or if they're long they have to sell that length."

A short position is a bet prices will fall, while a long position is a bet that prices will rise.