When an Iraqi militia threatened to blow up oil pipelines this month, oil prices shot up.

Yesterday, when reports that pipelines in Southern Iraq had been damaged by insurgents reached the New York Mercantile Exchange, the market shrugged and prices sank.

"We almost completely disregarded the news," said Michael Visconti, an independent trader on the mercantile exchange.

The market mood has shifted dramatically in a matter of weeks. Instead of vaulting higher on bad news, prices are spiraling downward as speculators sell their futures positions because of fear that prices will go lower still, analysts said. As prices ratchet down, automatic selling ensues as traders fear getting caught holding high-priced contracts in a slumping market.

The closing price for oil for October delivery was $42.28 per barrel yesterday, down 90 cents from Friday's close. The market peaked at a record of nearly $49 per barrel on Aug. 19. While oil prices have since eased, they remain higher than a year ago. In inflation-adjusted dollars, prices remain far below the peak of 1981.

Some analysts said they did not expect the downward trend in the market to last much longer and predicted that oil prices would eventually climb again. However, they offered a wide range of predictions on how sharp any rebound would be.

As prices rose this month, analysts and traders blamed not a shortage of oil but fears of a disruption to supplies at a time when worldwide demand is increasing and production is near capacity.

But some of the factors underlying the earlier run-up in prices have passed or are on hold.

For instance, prices rose because of fears that supplies from Yukos Oil Co., Russia's largest petroleum producer, could be disrupted because of a dispute between the company and the government. But as weeks passed without any major problem, those worries have eased, at least temporarily, analysts said. In addition, analysts said the peaceful presidential recall vote in Venezuela this month helped calm jittery nerves in the oil market.

"These expectations don't come to fruition and the market sort of runs out of patience and you get fatigue," said Gary N. Ross, chief executive of PIRA Energy Group, a consulting firm in New York. "Once it stops performing, the momentum turns and swings the other way."

While fears about disruption still exist, analysts said shifting perceptions about oil supplies have helped keep the concerns in check. Analysts said there was a growing realization that there was more than enough oil on the market. In addition, demand for oil traditionally begins to slacken as the summer winds down, also easing concerns about supplies.

Analysts said lower prices were an acknowledgement that the fundamentals of the market did not support the price.

"We're at the beginning of a correction," said Daniel Lippe, president of Petral Worldwide Inc. of Houston. But he added: "After the technical correction has run its course, all of the bad news will come back into play."

Some of the developments in Iraq yesterday were positive, analysts said. Shiite cleric Moqtada Sadr told his followers to suspend attacks on American and Iraqi forces, his representatives said.

But at the same time, there were conflicting reports about whether the country's oil exports had halted after pipelines were damaged. The Associated Press, quoting senior officials at the state-run oil company, said exports had stopped after insurgents attacked the pipelines. Other reports quoted officials saying oil flow continued.

"Three weeks ago, this news would have sent the market through the roof," said Ed Silliere, vice president of risk management for Energy Merchant Corp. of New York, which markets and distributes oil products. "You would have been up three, four dollars. . . . You would have seen an explosion in the market."

Instead of increasing on bad news, oil prices are decreasing as speculators sell their futures positions for fear of still lower prices.An Iraqi makes routine repairs. Traders shrugged off news that pipelines in Iraq had been damaged, and prices fell.Traders work in the oil futures pit at the New York Mercantile Exchange. October contracts for a barrel of light crude settled at $42.28 yesterday.