Crude registers sharp fall

Price witnesses largest single day decline in almost seventeen years

Crude prices fell by more than $4 today, Monday, 17 March, 2008. Prices fell after the dollar continued to remain under pressure today after economic concerns about an ongoing recession continued to haunt the US Market. It was the biggest daily loss for crude in 17 years.

Crude-oil futures for light sweet crude for April delivery today closed at $105.68/barrel (lower by $4.5/barrel or 4.1%) on the New York Mercantile Exchange. They earlier surged to $111.8 a barrel earlier in the day, the highest since trading began in 1983. Prices rose as much as $1.59 and dropped as much as $6.98 today.

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.

In its first weekend emergency action in almost three decades, the Federal Reserve lowered the so-called discount rate by a quarter of a percentage point to 3.25%. The U.S. consumes almost 25% of global oil production.

In the currency market today, the falling dollar boosted commodity prices until today as investors looked for an inflation hedge. The dollar sank to a record low against the euro and the Swiss franc fell to the weakest in 12 years against the yen, helping push gold and crude oil to highs.

Brent crude oil for April settlement today fell $4.45 (4.2%) to $101.75 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 tumbles more than 7%

Natural gas futures fell more than 7%, the biggest drop since August, amid declining crude- oil prices and forecasts for mild weather that will cut demand for the heating fuel. Natural gas for April delivery fell 76.8 cents (7.8%) to settle at $9.10 per million British thermal units.

Against this backdrop, April reformulated gasoline fell 18.9 cents to $2.5 a gallon, and April heating oil dropped 7.81 cents to $3.0684 a gallon.

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

The International Energy Agency, cut its forecast for 2008 global oil demand for a second month as record prices curbed consumption in some parts of the world. The agency reduced its forecast by 80,000 barrels a day to 87.54 million barrels a day, leaving annual demand growth at 2%.

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 4,173/barrel, lower by Rs 206(4.7%) against previous day’s close. Natural gas for March delivery closed at Rs 376/mmtbu, lower by Rs 24.5/mmtbu (6.5%).