Crude at lowest levels in six weeks

Prices drop as Dolly surpasses Gulf area

Crude-oil touched a six-week low today, Tuesday, 22 July, 2008 on forecasts that the tropical storm, Dolly, in the Gulf of Mexico will miss oil fields and refineries, easing concern about supply disruptions. The rebounding dollar also led further pressure on crude prices. Last week crude had coughed up almost $16.5 in four sessions. Prices had plunged once again on economic worries surrounding the US economy.

Crude-oil futures for light sweet crude for August delivery closed at $127.95/barrel (lower by $3.09/barrel or 2.3%) on the New York Mercantile Exchange. It slipped by 5.41% to $125.63 earlier during intra day trading. Crude for August delivery expired today. Yesterday, crude had registered the first increase in five days. Last week, prices coughed up $16.5 (11.2%). It's now 13.1% lower than the $147.27 record high hit last on Thursday, 10 July, 2008.

Crude prices gained 38% in the second quarter of this year. It was the biggest quarterly increase in nine years. It ended June 2008 higher by 9.9%. Prices are 73% higher than a year ago. For the year, crude is up by 36.4% till date.

Hurricane Dolly moved toward the Texas border with Mexico, avoiding most U.S. Gulf production. Yesterday, hurricane watch was issued for the Texas coastline from Brownsville to Port O'Connor at morning time by the Miami-based hurricane center. The northern Gulf of Mexico accounts for about 25% of U.S. oil production.

On the other hand, Iran had snubbed Western efforts to get it to suspend nuclear enrichment at talks in Geneva on 19 July setting the stage for new sanctions if the Middle East's second-largest oil producer doesn't respond to an existing proposal within two weeks. This also led to higher crude price yesterday.

At the currency markets on Tuesday, the dollar index rebounded after dropping 0.3% yesterday on speculation borrowing costs may rise later this year. The dollar rose as much as 0.8% against a basket of six major currencies.

In its monthly report issued last week, OPEC lowered its forecast for world oil-demand growth for 2008 to 1.03 million barrels a day, which represents a decline of 70,000 barrels from its previous estimate. Global oil demand this year is expected to average 86.81 million barrels a day. Earlier this month, the Energy Information Administration projected that U.S. petroleum consumption will shrink by 400,000 barrels a day in 2008, 38% more than EIA's June projection of a decline of 290,000 barrels.

Against this backdrop, August reformulated gasoline fell 7 cents, or 2.2%, to $3.15 a gallon, and August heating oil dropped 7 cents, or 1.9%, to $3.68 a gallon.

Natural gas fell to the lowest in more than three months amid forecasts that Tropical Storm Dolly will miss production areas in the Gulf of Mexico. Natural gas for August delivery fell 44.3 cents (4.2%) to settle at $10.067 per million British thermal units.

At the MCX, crude oil for August delivery closed at Rs 5,442/barrel, lower by Rs 157 (2.8%) against previous day’s close. Natural gas for August delivery closed at Rs 430.7/mmbtu, lower by Rs 22.6/mmbtu (5%).