Another day of gains for Crude oil

Crude oil and natural gas end month 12% and 8% higher respectively

Crude prices ended marginally higher for the second consecutive day on Monday, 02 June, 2008. Prices rose after concerns regarding demand for oil were eased. Prices also climbed because of a rally in the natural gas market, which advanced on signs that competition for the fuel will increase as the weather warms. The hurricane season in the Atlantic, which has the potential to disrupt oil and natural gas production in the Gulf of Mexico, officially began on 1 June.

Crude-oil futures for light sweet crude for July delivery today closed at $127.76/barrel (higher by $0.41/barrel or 0.3%) on the New York Mercantile Exchange. Prices rose to a high of $129.35 earlier during the session.

Last week, crude prices closed lower by 3.7%. Previous during the month of May, 2008 prices had touched an all time high of $135.09. For the year, crude is up by 32.3% till date. Prices have more than doubled on a yearly basis.

At the currency markets on Monday, the dollar got a lift after U.S. manufacturing data were better than expected. The Institute for Supply Management's index for May improved to 49.6% from 48.6% in April, and came in above the 48.7% consensus expectation. But the dollar weakened on the heels of a decline in the broader U.S. stock market and stronger oil prices. Against this backdrop, the dollar index, which tracks the greenback against a basket of six major currencies, was at 72.910 as against previous closing of 73.107.

But on a positive note, the ISM report eased the demand concerns in the crude market in the coming months.

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.

Natural gas rises to the highest since December 2005

Brent crude oil for June settlement today fell $0.28 (0.2%) to $128.02 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 rose to the highest since December 2005 amid speculation competition for gas to put into storage will increase as the weather warms. Natural gas for July delivery rose 26.6 cents (2.3%) to settle at $11.969 per million British thermal units.

Against this backdrop, reformulated gasoline for July delivery closed up 4 cents at $3.39 a gallon in New York, while July heating oil finished at $3.72 a gallon, up 5 cents.

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 June delivery closed at Rs 5,443/barrel, higher by Rs 40 (0.7%) against previous day’s close. Natural gas for July delivery closed at Rs 512.6/mmbtu, higher by Rs 15.3/mmbtu (3.1%).