Crude softens

Increase in refinery utilization lead to more availability of petroleum products

Crude oil prices registered another drastic drop on Wednesday, 04 June, 2008. The weekly inventory report from the Energy Department was the main reason behind this. The dollar also remained modestly strong today after Federal Reserve Chairman Ben Bernanke yesterday signaled he's finished cutting U.S. borrowing costs for now thereby boosting the dollar. Crude prices dropped more than 2% today after dropping almost 4% yesterday.

Crude-oil futures for light sweet crude for July delivery today closed at $122.31/barrel (lower by $2.01/barrel or 1.6%) on the New York Mercantile Exchange.

As per the weekly inventory report by the Energy Department, crude supplies dropped by 4.8 million barrels to 306.8 million for the week ended 30 May. As per the data, supplies have fallen a total of 19 million barrels in three weeks.

But refinery utilization was up 1.8% at 89.7% of capacity compared with 87.9 % a week earlier. The increase prompted a rise in petroleum products. As per EIA, motor gasoline supplies rose 2.9 million barrels to 209.1 million barrels and distillate stocks were up 2.3 million barrels at 111.7 million barrels.

Last week, crude prices closed lower by 3.7%. Previously during the month of May, 2008 prices had touched an all time high of $135.09. For the year, crude is up by 28% till date. Prices are 91% higher on a yearly basis. .

At the currency markets on Wednesday, the U.S. Dollar Index, a weighted measure against the euro, yen and four other major currencies, gained as much as 0.3%. Energy and metals dropped yesterday after Bernanke said the Fed is working with the Treasury to carefully monitor developments in foreign-exchange markets and is aware of the effect of the dollar's decline on inflation.

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 higher by 65% on a yearly basis

Natural gas in New York advanced as traders ignored the return of the Independence Hub in the Gulf of Mexico and bought contracts amid speculation summer storms and higher temperatures will spur prices. Natural gas for July delivery rose 15.8 cents (1.3%) to settle at $12.379 per million British thermal units. Futures earlier fell as low as $12.076. Futures are 65% higher this year.

Against this backdrop, prices for July reformulated gasoline fell by 15 cents, or 4.5%, to finish at $3.20 a gallon, while July heating oil closed at $3.5458 a gallon, down 9.42 cents, or 2.6%.

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 5,249/barrel, lower by Rs 75 (1.4%) against previous day’s close. Natural gas for June delivery closed at Rs 529.8/mmbtu, higher by Rs 10.9/mmbtu (1.9%).

The Energy Department will release its weekly update natural gas tomorrow