Biggest oil price drop in 17 years

Oil prices plummeted by the second-largest margin on record Tuesday as investors feared a further decline in U.S. demand after hearing comments from Federal Reserve Chairman Ben Bernanke.

Light, sweet crude fell $6.44 to settle at $138.74 a barrel in trading on the New York Mercantile Exchange.

The drop in oil was the largest single-day slide in dollar terms since Jan. 17, 1991, when oil fell by $10.56. On that day, President George H.W. Bush withdrew oil from the Strategic Petroleum Reserve ahead of the first Gulf War.

But in 1991, oil was trading at just $32 a barrel, so the more than $10 slide in dollar terms represented a record 33% drop. Oil fell 4.4% Tuesday, which does not even crack the top 100 price declines in percentage terms.

On Tuesday morning, Federal Reserve Chairman Ben Bernanke warned that high energy prices have helped to limit the purchasing power of U.S. households. High energy costs will remain a drag on the U.S. economy for the rest of the year, Bernanke told the Senate Banking Committee Tuesday.

That could result in businesses pushing a greater percentage of their high fuel and commodity costs through to consumers, he warned.

The price of oil has doubled over the past year. A barrel of crude oil cost about $65 in June 2007; it is currently hovering around $130 a barrel.

Gas prices have skyrocketed as a result, with some American consumers paying more than $4 a gallon. The national average is $3.95 per gallon, according to a AAA survey published May 29. A year ago, the national average was about $3.20.

Observers say several factors, domestic and global, are responsible for the price increases.

Although demand is falling in places like the United States and Europe because of high prices, it is surging in emerging markets like China and India.

Meanwhile, concerns are rising that supply -- battered by political instability in some oil-rich countries and a decision by others to not increase production substantially -- is not keeping up with demand.

Additionally, the declining value of the dollar, the currency used by the international oil market, has made it easier for Asian and European countries to purchase oil.