Crude takes a deep plunge

Crude oil prices drop by more than 3% but natural gas continues to climb

Crude oil prices registered drastic drop on Tuesday, 03 June, 2008. The strengthening of the dollar was the main reason behind the fall in prices of crude oil. The dollar rallied today after Federal Reserve Chairman Ben Bernanke signaled he's finished cutting U.S. borrowing costs for now thereby boosting the dollar. Crude prices dropped more than 3% today.

Crude-oil futures for light sweet crude for July delivery today closed at $124.31/barrel (lower by $3.45/barrel or 2.7%) on the New York Mercantile Exchange.

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 29.6% till date. Prices are 91% higher on a yearly basis. .

At the currency markets on Tuesday, the dollar bounced firmly higher. The dollar index, which tracks the greenback against a basket of six major currencies, was at 73.317, compared with 72.72 before Bernanke's morning speech.

Energy and metals dropped 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. The falling dollar has helped lead commodities including oil, gold and corn to records this year.

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 $3.44 (2.7%) to $124.58 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 increased demand as distributors secure supplies for storage in competition with industrial users. Natural gas for July delivery rose 25.2 cents (2.1%) to settle at $12.221 per million British thermal units.

Against this backdrop, prices for July reformulated gasoline fell by 3.75 cents to close at $3.3525 a gallon while July heating oil closed at $3.6396 a gallon, down 8.04 cents, or 2.2%.

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 5,324/barrel, lower by Rs 119 (2.2%) against previous day’s close. Natural gas for June delivery closed at Rs 519.7/mmbtu, higher by Rs 7.1/mmbtu (1.4%).

The Energy Department will release its weekly update on petroleum supplies tomorrow but has said it will be released at 10:35 a.m. E.S.T five minutes later than usual.