Crude prices drop by more than $3

Prices give up earlier gains as the dollar strongly firms up

Strong dollar took crude prices lower today, Tuesday, 10 June, 2008 and prices closed lower by more than $3 after rising higher earlier in the day. Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies.

Crude-oil futures for light sweet crude for July delivery today closed at $131.31/barrel (lower by $3.04/barrel or 2.3%) on the New York Mercantile Exchange. Earlier it rose to a high of $137.98/barrel during the day.

Last week, crude prices closed higher by 8.8%. For the year, crude is up by 36% till date. Prices are 98% higher on a yearly basis.

Oil prices had shot higher by almost $11 a barrel on Friday, 06 June, 2008 scoring their biggest one-day gain in dollar terms as talk about a potential Israeli attack on Iran combined with a slide in the U.S. dollar. Prices had touched an all time high of $139/barrel but closed at $138.5. That was an all-time closing high.

At the currency markets on Tuesday, the dollar index, a weighted measure against the euro, yen, pound and three other major currencies, jumped 1.1%. Federal Reserve Chairman Ben S. Bernanke said risks to the economy have faded, spurring speculation that interest rates will rise.

Also, The International Energy Agency (IEA) cut its forecast for global oil demand for a fifth month today as record prices dented consumption. The IEA reduced its 2008 outlook by about 70,000 barrels a day to 86.77 million barrels a day from 86.84 million last month. That leaves demand growth for this year at 0.9%.

Saudi Arabia reportedly said yesterday that it had increased production this month and has told all the oil companies it deals with that it's ready to provide them with additional supplies, if needed.

Natural gas consumption to rise 2.2% in 2008

Brent crude oil for June settlement today fell $2.89 (2.2%) to $131.02 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 in New York declined after crude oil fell and lower temperatures were forecast to reduce demand. Natural gas for July delivery fell 16.9 cents (1.3%) to settle at $12.435 per million British thermal units. Gas earlier rose as high as $12.743 per million Btu. Futures are 66% higher this year.

Against this backdrop, prices for petroleum products closed lower along with crude Tuesday. July reformulated gasoline fell 7.07 cents to close at $3.3193 a gallon and July heating oil shed 6.76 cents to end at $3.8124 a gallon.

As per EIA, total natural-gas consumption is expected to rise by 2.2% in 2008, with year-over-year increases in residential, commercial and electric power sectors largely weather driven.

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 5,658/barrel, lower by Rs 165 (2.8%) against previous day’s close. Natural gas for June delivery closed at Rs 533.7/mmbtu, lower by Rs 7.2/mmbtu (1.3%).