Crude gains 11% in Feb

Prices gain 11% in February

Crude prices ended higher for the week that ended on Friday, 29 February, 2008. Prices ended higher by $2.84(3%) at $101.84/barrel. Price ended twice more than $100/barrel during the week. Cold weather continued to grip parts of North East and Mid West USA. Dropping dollar against euro also pushed crude prices also higher prompting traders to invest in commodities against a hedge against inflation.

Initially during the week, prices rose after fresh tensions cropped up in the Middle East. But then, during middle of the week, prices fell below $100 after EIA reported that crude inventories rose more than expected. But then, on Friday, 29 February, prices crossed $103 during day trading. But ultimately, price fell back and closed at $101.84/barrel.

The new high on Friday was also triggered by reports that a state-run oil company in Ecuador, the smallest producer in the 13-member Organization of Petroleum Exports Countries, suspended operations at a key export pipeline overnight.

Crude prices have gained more than $10 (11%) in February. On a yearly basis, prices have gained 6% in FY 2008.

Also, on the currency markets on Friday, the dollar extended its decline against most of its major counterparts. The dollar index, which tracks the performance of the greenback against a basket of six major currencies, fell 0.8% to 73.70. The dollar earlier dropped to a three-year low against the yen.

EIA reported on Wednesday, 27 February, 2008 in the weekly inventory report that crude inventories grew more than expected, rising 3.2 million barrels to stand at 308.5 million barrels in the week ended 22 February. Market was expecting an increase of 2.6 million barrels.

EIA also reported that U.S. gasoline supplies rose by 2.3 million barrels in the latest week, while distillate supplies, which include heating oil and diesel, fell by 2.5 million barrels.

OPEC is expected to go for a production cut in its coming meet. A fortnight back, Iranian oil minister said that reducing production is very normal for OPEC in March. Iran is OPEC’s second largest oil producer. Prior to that, two ministers of OPEC hinted that the cartel might go for a production cut in its next meeting at March, 2008. At its 1 February meeting at Vienna, OPEC members decided to keep current output levels unchanged.

In a monthly report released earlier this month, EIA said the world oil market is poised to ease over the next two years with production increases offsetting moderate growth in oil demand.