Crude prices continue to sink

Prices give up almost $16 in three sessions

Crude oil prices dropped for third straight day today, Thursday, 17 July, 2008 and with today’s fall crude gave up almost $16 in three sessions. Prices plunged once again on economic worries surrounding the US economy and also after government data yesterday showed a surprise increase in U.S. petroleum inventories last week.

Crude-oil futures for light sweet crude for August delivery today closed at $129.29 /barrel (lower by $5.3/barrel or 3.9%) on the New York Mercantile Exchange. Earlier in the day it rose by $2.15 to $136.75. Last week, prices gained $0.21 (0.2%). Crude has lost $15.8 over the last three sessions. It's now 12.2% lower than the $147.27 record high hit last Thursday.

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 78% higher than a year ago. For the year, crude is up by 38% till date.

At the currency markets on Thursday, also weighing on gold prices was a rebound in the U.S. currency. The dollar extended gains against Japan's yen and the Swiss franc and reversed earlier losses against most other rivals as stocks rallied and crude oil futures continued to drop. The dollar index which measures the buck against a trade-weighted basket of currencies, rose 0.3% to 72.28.

EIA reported yesterday that U.S. crude inventories rose 3 million barrels to stand at 296.9 million barrels in the week ended 11 July. Gains in U.S. crude inventories got a helping hand from increased imports. Daily crude imports averaged nearly 10.8 million barrels last week, up 1.2 million barrels from a week earlier. With the weekly gain of 3 million barrels, U.S. crude inventories were still near the lower boundary of the average range for this time of year.

EIA also reported that gasoline supplies rose by 2.4 million barrels, and distillate stocks gained by 3.2 million barrels. Over the last four weeks, U.S. motor gasoline demand averaged 9.3 million barrels per day, down by 2.1% from the same period last year. U.S. refineries operated at 89.5% of their operable capacity last week, up from the previous week's 89.2%.

In its monthly report issued earlier during the 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 3.5% to $3.16 a gallon and August heating oil lost 2.5% to $3.74 a gallon.

Natural gas fell the most in nearly a year, reaching a three-month low, after a government report showed U.S. supplies rose last week more than expected. Natural gas for August delivery fell 78.9 cents (6.9%) to $10.609 per million British thermal units. Futures earlier slipped 8.2%.

EIA reported earlier today that stockpiles for the week ended 11 July rose 104 billion cubic feet, to 2.312 trillion against an expected rise of 88 billion cubic feet.

At the MCX, crude oil for July delivery closed at Rs 5,611/barrel, lower by Rs 201 (3.5%) against previous day’s close. Natural gas for July delivery closed at Rs 452.6/mmbtu, lower by Rs 36/mmbtu (7.4%).