Crude oil slips

Crude prices slip as fuel product inventories rise

Crude prices went through a volatile session today and ultimately ended lower for the day. Prices rose today initially after chances of recession hitting US increased. But at the end prices 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 closed at $95.67/barrel (lower by $0.66/barrel or 0.7%) on the New York Mercantile Exchange. Earlier, the contract hit an intraday high of $97.97 and a low of $95.42. Prices are 72% higher on a yearly basis. Last week, crude prices gained $2.

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 $1.17 (1.2%) to $94.37 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.

Only Natural gas registers gains

Natural gas in New York advanced amid forecasts for colder weather and expectations of an above-average inventory withdrawal. Natural gas for February delivery rose 13.2 cents (1.7%) to settle at $8.099 per million British thermal units. Gas has gained 24% in the past one year.

As per EIA, 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 fell 3.84 cents to $2.4355 a gallon and February heating oil slid 2.29 cents to $2.6134 a gallon.

As per National Weather Service, above average temperature will dominate most part of US for the next two weeks. This is the time of peak demand for gasoline and heating oil.

Yesterday EIA said that it 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.