Crude takes a huge leap

Prices rise more than $4 on a single day as crude supplies mark unexpected drop

Crude-oil futures were on a roll today, Wednesday, 21 May, 2008 after government data showed that crude supplies unexpectedly dropped, marking their first decline in five weeks. Prices crossed the $133 mark and registered an increase of more than $4. A strengthening of the euro against the dollar added to the gains. The dollar fell after Federal Open Market Committee's 30 April meeting reinforced belief that the central bank has paused its rate-cutting cycle and clearly remains worried about inflation and growth.

Crude-oil futures for light sweet crude for July delivery today closed at $133.17/barrel (higher by $4.19/barrel or 3.3%) on the New York Mercantile Exchange. Price touched a high of $133.35 earlier during the day.

Last week, crude prices closed higher by 29 cents. For the year, crude is up by 33% till date. Prices have more than doubled on a yearly basis.

As per the weekly inventory report by the Energy Department, crude supplies fell by 5.4 million barrels to 320.4 million for the week ended 16 May. Prior to that, supplies had climbed more than 12 million barrels in the past four weeks. Market was expecting a rise of 900,000 barrels for the latest week.

EIA also revealed that crude-oil imports averaged 9.2 million barrels per day last week, down 696,000 barrels per day from a week earlier. Meanwhile, refinery utilization rose to 87.9% of capacity from 86.6% a week ago. Still, motor gasoline supplies fell 800,000 barrels to 209.4 million barrels last week. Distillate stocks were up 700,000 barrels at 107.8 million barrels.

Yesterday crude prices had closed above $129 a barrel for the first time ever after billionaire hedge-fund manager Boone Pickens said prices will reach $150 a barrel this year as demand outpaces supply.

At the currency markets on Wednesday, the dollar fell against most of its major counterparts, with the dollar index dropping to 71.91 from 72.459 in late North American trading on late Tuesday.

Since last September, Fed has axed interest rates seven times and brought it down to 2%. The ECB has kept rates unchanged at 4% since June, 2007.

Dollar weakness typically benefits dollar-denominated commodities, such as gold and crude oil, because it makes them cheaper for holders of other currencies. On the other hand strong dollar reduces the appeal of the metal as alternate source of investment.

Last week, prices kissed $128 for first time after Goldman Sachs raised its forecast on Friday for the average price of West Texas Intermediate oil in the second half of 2008 to $141 a barrel from $107 a barrel. As per the company’s reports, long-term oil prices will need to continue to rise to bring trend oil demand growth in line with trend supply growth. Credit Suisse Group AG and Societe Generale SA raised their oil price forecasts for 2008 and 2009 citing investor flows and limited supply.

Gasoline and heating oil climb to their loftiest levels ever

Brent crude oil for June settlement today rose $2.8 (2.2%) to $130.04 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.

June natural gas futures rose 27 cents, or 2.4%, to close at $11.64 per million British thermal units. It climbed as high as $11.68, its highest level in a week.

Against this backdrop, July reformulated gasoline gained 9.65 cents to close at $3.3965 a gallon and July heating oil rose 13.8 cents to end at $3.9084 a gallon.

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 May delivery closed at Rs 5,656/barrel, higher by Rs 206 (3.8%) against previous day’s close. Natural gas for July delivery closed at Rs 503.4/mmbtu, higher by Rs 14.4/mmbtu (2.9%).