Crude slips on demand concerns

Prices fall as ISM data ignites recession concerns

Crude prices slipped today, Tuesday, 5 February, 2008 as weak economic data fuelled recession concerns and this led to questioning of the demand for crude in coming months. Prices slipped ore than $1.5/barrel.

Crude-oil futures for light sweet crude for March delivery today closed at $88.81/barrel (lower by $1.66/barrel or 1.8%) on the New York Mercantile Exchange. Prices are 51% higher than a year ago. Earlier it fell to a low of $87.5/barrel.

The Institute for Supply Management's index of non-manufacturing plummeted to 41.9 from 54.4 in December, its largest monthly decline on record. The decline in the index reignited fears that the U.S. economy was in a slowdown.

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

Brent crude oil for March settlement today fell $1.66 (1.8%) to $88.81 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 amid speculation a revised forecast for lower temperatures next week will lift demand in the regions of highest use. Natural gas for March delivery rose 7.3 cents (0.9%) to settle at $7.942 per million British thermal units

Against this backdrop, March reformulated gasoline dropped 4.7 cents to $2.2647 a gallon and March heating oil declined 4.38 cents to $2.4465 a gallon.

Last week, Organization of Petroleum Exporting Countries decided to keep current output levels unchanged.

At the MCX, crude oil for February delivery closed at Rs 3,489/barrel, lower by Rs 66 (1.8%) against previous day’s close. Natural gas for February delivery closed at Rs 313.8/mmtbu, higher by Rs 2.9/mmtbu (0.93%).

Tomorrow, EIA will report the inventory status of crude and fuel products.