Crude oil slips

Prices fall for first time in six days as initial claims rise to highest levels in two years

Crude prices ended lower for the first time in six days after fresh recession worries once again started bothering investors today, Thursday, 31 January, 2008. The largest gain in unemployment claims in more than two years imparted a sense of nervousness among investors that economy is indeed in the path of a slowdown.

Crude-oil futures for light sweet crude for March delivery today closed at $91.75/barrel (lower by $0.58/barrel or 0.6%) on the New York Mercantile Exchange. Prices are 58% higher than a year ago. Earlier it fell to a low of $89.58/barrel.

The Labor Department reported today that the number of Americans filing first-time claims for unemployment benefits rose to a 27-month high. Initial claims for state unemployment benefits rose 69,000 in the week ended 26 January reaching 375,000. It marked the highest level since early October and the biggest weekly jump since September 2005 in the wake of Hurricane Katrina.

Yesterday, Federal Reserve lowered interest rates 0.5% point to 3% today. This was after the 75 bps rate cut to 3.5% that Fed did last week. The interest rate cuts are to avoid the US economy from plunging into recession.

Yesterday, EIA reported the weekly inventory report. U.S. crude inventories rose for a third week, up 3.6 million barrels to 293 million barrels in the week ended 25 January. Crude imports averaged about 10.1 million barrels per day last week, down 100,000 barrels per day from the previous week.

Crude had ended FY 2007 substantially higher by $35 or 57%. It was crude’s biggest yearly gain in five years.

Natural gas inventories register largest weekly drop

Brent crude oil for March settlement today dropped $0.32 (0.4%) to $91.75 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 advanced on speculation lower temperatures next week would boost demand amid declining U.S. inventories. Natural gas for March delivery rose 2.9 cents (0.4%) to settle at $8.074 per million British thermal units. It earlier fell as low as $7.94 per million Btu.

EIA reported today that stockpiles fell 274 billion cubic feet to 2.262 trillion cubic feet for the week ended 25 January, the biggest one-week drop.

Against this backdrop, March reformulated gasoline lost 1.98 cents to $2.3572 a gallon and March heating oil slid 1.33 cents to $2.5291 a gallon.

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. The cartel is expected to increase production.

At the MCX, crude oil for February delivery closed at Rs 3,559/barrel, lower by Rs 49 (1.36%) against previous day’s close. Natural gas for February delivery closed at Rs 314/mmtbu, lower by Rs 1.4/mmtbu (0.44%).