Crude falls back to $100

Prices continue to drop as traders part ways with commodities

Crude prices fell drastically once again on Thursday, 20 March, 2008 but at the end, prices closed modestly lower. Prices fell as traders continued to part ways with commodities due to rising economic concerns in the US. Prices had been continuing to slip ever since Federal Reserve decided to cut overnight lending rates by 75 bps to bring it down to 2.25% to strengthen the economy. Prices also softened after Energy Department reported a day earlier about rise in crude inventories and drop in crude demand for last week.

Crude-oil futures for light sweet crude for May delivery closed at $101.84/barrel (lower by $0.70/barrel or 0.7%) on the New York Mercantile Exchange. Prices earlier dropped by $3 to $98.65. Crude prices are 80% higher on a yearly basis. The crude ended the week lower by more than $8 (8.2%) .

A stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies. On the other hand, crude prices, denominated in dollars, tend to rise when the greenback falls, as a weaker U.S. currency makes crude less expensive to buyers holding other currencies. It also lowers oil producers' dollar revenue and forces them to raise prices.

On Wednesday, 19 March, EIA reported today that U.S. crude inventories rose less than expected, up 200,000 barrels to 311.8 million barrels in the week ending 14 March. U.S. crude oil imports averaged about 9.5 million barrels per day last week, down nearly 1.1 million barrels per day from the previous week.

In the currency market, the dollar continued to rally, with the dollar index, which measures the U.S. unit against a basket of major currencies, up 1%.

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

OPEC left production targets unchanged on its 5 March meeting at Vienna, giving 12 of its 13 members a combined quota of 29.67 million barrels a day.

At the MCX, crude oil for March delivery closed at Rs 4,073/barrel, lower by Rs 85 (2%) against previous day’s close. Natural gas for March delivery closed at Rs 368.7/mmtbu, higher by Rs 1.9/mmtbu (0.5%).