Crude prices fall to lowest level in two weeks on Goldman Sachs prediction
Crude prices fell back to $94/barrel today, Thursday, 10 January, 2008 as traders became concerned about upcoming worldwide demand. Prices fell to lowest level in almost two weeks. Some recession related comments from Goldman Sachs also pressured prices. Yesterday, also, priced had closed lower as Energy Department reported buildup in fuel stockpiles.
Crude had ended FY 2007 substantially higher by $35 or 57%. It was crude’s biggest yearly gain in five years.
Crude-oil futures for light sweet crude for February delivery today closed at $93.71/barrel (lower by $1.96/barrel or 2.1%) on the New York Mercantile Exchange. Prices are 74% higher on a yearly basis. Last week, crude prices gained $2.
yesterday, Goldman Sachs announced that US is already into a recession or will soon be entering one. Today, it also commented about Japan and said that there is a 50% probability of Japan hitting a recession this year. US and Japan together account for one-third of crude’s total worldwide consumption.
Yesterday, as per the weekly inventory report by the Energy Department, U.S. crude inventories dropped by 6.8 million barrels to 282.8 million barrels for the week ending 4 January, 2008, the lowest in more than three years.
The report also said that gasoline supplies rose by 5.3 million barrels in the latest week, and distillate supplies, which include heating oil and diesel, grew by 1.5 million barrels. U.S. crude oil imports averaged 9.8 million barrels per day last week, down 203,000 barrels per day from the previous week. U.S. refineries operated at 91.3% of their capacity, the highest in more than four weeks.
Brent crude oil for February settlement today fell $2.15 (2.3%) to $92.22 on the London-based ICE Futures Europe exchange. The London benchmark rose 54% in FY 2007, the most since 1999 when prices more than doubled.
Natural gas rallies as supplies drop more than expected
Natural gas in New York rallied today after EIA reported seventh weekly drop in natural gas inventories. Gas for February delivery rose 16 cents (2%) to settle at $8.259 per million British thermal units. EIA reported that stockpiles fell 171 billion cubic feet to 2.75 trillion cubic feet in the week ended 4 January, as against an expected 165 billion cubic feet.
EIA announced earlier this week that consumption of natural gas surged 6% in 2007 as against a decline of 1.6% in the previous year. In FY 2008 and FY 2009, consumption is forecast to rise 0.6% and 1% respectively.
Against this backdrop, February reformulated gasoline dropped 7.54 cents to $2.3601 a gallon, while February heating oil fell 5.61 cents to $2.5573 a gallon.
Today, Federal Reserve Chairman, Ben Bernanke said that U.S. central bank is struggling with a deteriorating economy brought on by a struggling housing market, high energy prices and a weaker stock market. To help situation from worsening further, he hinted that more interest rate cuts are on the way.
EIA expects crude oil prices to average $94 per barrel in January. The Western Texas Intermediate crude oil, the underlying crude for Nymex crude-oil futures, is expected to average about $87 per barrel in 2008 and $82 in 2009. WTI prices averaged $72 per barrel in 2007.
Members of the OPEC 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 1 February, 2008 meeting in Vienna.
At the MCX, crude oil for January delivery closed at Rs 3,700/barrel, lower by Rs 107 (2.8%) against previous day’s close. Natural gas for December delivery closed at Rs 323.2/mmtbu, higher by Rs5.8/mmtbu (1.8%).