Crude shoots up by more than $5 in one day

Price settles above $104 as last week’s inventories drop unexpectedly

Crude prices shot up by more than $5/barrel today after Energy Department reported an unexpected drop in crude inventories last week. Prices were also fuelled by an all time low dollar against the euro and thirteen member The Organization of Petroleum Exporting OPEC cartel deciding to keep production quotas unchanged in today’s meeting.

Crude-oil futures for light sweet crude for April delivery today closed at $104.52/barrel (higher by $5/barrel or 5%) on the New York Mercantile Exchange. Prices are 74% higher than a year ago. It touched a high of $104.95 today.

In the currency market today, the dollar index, which tracks the performance of the greenback against other major currencies, dropped 0.3% to 73.49.

EIA reported today that crude inventories fell for the first time in eight weeks, dropping 3.1 million barrels to stand at 305.4 million barrels for the week ended 29 February. Inventories had gained about 25 million barrels this year. U.S. refineries operated at 85.9% of their operable capacity last week, up from the previous week's 84.7%.

Also, The Organization of Petroleum Exporting Countries agreed to hold production steady at a meeting in Vienna.

The Energy Department's EIA also reported U.S. gasoline supplies rose by 1.7 million barrels to 234.3 million barrels in the week ended 29 February, the highest since January 1994. Distillate supplies, which include heating oil and diesel, fell by 2.7 million barrels.

Brent crude oil for April settlement today rose $4.12 (4.2%) to $101.64 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.

Heating oil closes at highest ever front month contract

Natural gas surged as crude oil climbed to a record after OPEC reached a production agreement and U.S. inventories unexpectedly fell. Gas for April delivery rose 38.8 cents (4.2%) to settle at $9.741 per million British thermal units. Gas has risen 30% this year.

Against this backdrop, April reformulated gasoline gained 11.3 cents to $2.6421 a gallon and April heating oil rallied 15.13 cents to $2.9431 a gallon, the highest closing level a front-month contract has ever seen.

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.

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

At the MCX, crude oil for March delivery closed at Rs 4,167/barrel, higher by Rs 137(3.4%) against previous day’s close. Natural gas for March delivery closed at Rs 391.9/mmtbu, higher by Rs 11.5/mmtbu (3%).