Crude gains more than $2

Lower borrowing costs is expected to spur fuel demand

Cut in interest rate by Federal Reserve took oil prices back above $90 today and crude closed more than $2 higher for the day. Lower borrowing costs is expected to spur fuel demand and investment in commodities.

For the day ending Tuesday, 11 December, 2007, crude-oil futures for light sweet crude for January delivery closed at $90.02/barrel (higher by $2.16/barrel or 2.5%) on the New York Mercantile Exchange. The contract touched $90.55 before the Fed announced its decision at 2:15 p.m. Prices reached a high of $99.2 on 21 November. Prices are up 47% from a year ago.

The central bank lowered the federal funds rate by a quarter-point to 4.25%. The Fed also lowered its discount rate, the interest it charges on direct loans it makes to banks, by a quarter-point to 4.75%.

In the currency market today, the dollar slipped against the yen but gained against most other major rivals. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, rose 0.2% at 76.230.

Brent crude oil for January settlement rose $1.95 (2.2%) to $89.99 on the London-based ICE Futures Europe exchange.

EIA expects global oil markets to remain tight through 2008

Natural gas futures in New York rose on speculation higher demand spurred by colder weather pulled above-average quantities of gas from stockpiles. Natural gas for January delivery rose 5.3 cents (0.8%) to settle at $7.085 per million British thermal units. Futures have gained 12% this year till date.

Against this backdrop, January reformulated gasoline rose 4.13 cents to $2.2914 a gallon and January heating oil gained 4.54 cents to $2.5230 a gallon.

Members of the Organization of Petroleum Exporting Countries left production targets unchanged at the 5 December meeting in Abu Dhabi. The group, which produces 40% of the world's oil, will review output at a Feb. 1 meeting in Vienna.

As per EIA, global oil markets will likely remain tight through 2008 and monthly average oil prices are expected to near $85 per barrel over the next year. World oil consumption in 2008 is projected to rise by 1.4 million barrels.