Eased Iraq tension and strong dollar pull down crude

Prices drop drastically and fall by more than $4 as dollar rebounds

Crude prices fell substantially lower on Monday, 31 March, 2008 as tensions eased in Iraq and dollar rebounded against its rivals. Prices also softened on signs that a U.S. report will show inventories rose for the 11th time in 12 weeks as demand weakened.

Crude-oil futures for light sweet crude for May delivery closed at $101.48/barrel (lower by $4.04/barrel or 3.8%) on the New York Mercantile Exchange. Prices earlier rose by $1.16 during intraday trading. Crude prices are 54% higher on a yearly basis. For the year, crude is up by 5.8% till date. It touched a high of $111.8 on 17 March, 2008 but has slipped thereafter. For March, it closed almost stagnant, lower by a mere 26 cents on a m-o-m basis. Last week, crude ended the week lower by more 3%.

In the currency market today, the dollar traded mostly higher against other major currencies, with the dollar index gaining 0.2% at 71.74. Among major economic data today, business activity in the Chicago region continued to contract in March, but the contraction was less severe than in February.

In Iraq, violence eased and the pipelines where explosion took place in the last week were reportedly repaired. An Iraqi oil pipeline that carries about 100,000 barrels a day to the Basra oil terminal was damaged by a fire started by an explosive device on 27 March.

Also traders anticipated that crude-oil supplies increased by more than 2 million barrels for the week ended on 28 March.

Brent crude oil for May settlement today fell $3.47 (3.3%) to $100.3 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 gains 35% in the first quarter outpacing crude

Natural gas climbed above $10 per million British thermal units as utilities and industrial companies compete to rebuild inventories. Natural gas for May delivery rose 30.1 cents (3.1%) to settle at $10.101 per million British thermal units. Natural gas rose by 35% in the first quarter.

Against this backdrop, reformulated gasoline for May delivery fell 8.64 cents to $2.6271 a gallon and May heating oil lost 8.15 cents to $2.9061 a gallon.

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. Also over the weekend, it was reported that OPEC President Chakib Khelil said oil prices would range between $80 and $110 a barrel for the rest of 2008.

At the MCX, crude oil for May delivery closed at Rs 4,027/barrel, lower by Rs 142 (3.4%) against previous day’s close. Natural gas for April delivery closed at Rs 399.6/mmtbu, lower by Rs 11.5/mmtbu (2.9%).