Crude prices end modestly higher

Prices end higher though IEA cuts its demand outlook for next four years

Crude futures rose today, Tuesday, 01 July, 2008 as the dollar fell. Prices rose on concern that Israel may attack Iran over its nuclear program and disrupt supply from OPEC's second-largest producer.

Crude-oil futures for light sweet crude for August delivery today closed at $140.97/barrel (higher by $0.97/barrel or 0.7%) on the New York Mercantile Exchange. Prices rose to a high of $143.33 earlier during the day. 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%. Last week, crude prices closed higher by 3.6%. Prices are 105% higher than a year ago. For the year, crude is up by 43.7% till date.

But uncertainty ahead of this week's update on U.S. petroleum supplies and some assumptions that high prices hurt energy demand kept prices in check, prompting a pullback from the day's high of more than $143 a barrel.

Today, the IEA (International Energy Agency) said in a report that spare OPEC capacity will shrink by 2013, keeping the market tight. In its Medium-Term Oil Market Report today, IEA reported that OPEC spare capacity will rise from 2.5 million barrels a day in 2008 to more than 4 million a day in 2010 before fading to negligible levels of around 1 million barrels a day by 2013.

International Energy Agency also said that supplies might not keep up with demand through 2013. The IEA, the Paris-based adviser to 27 oil-consuming nations, cut more than 3 million barrels a day from its 2012 global demand forecast. The IEA lowered demand forecasts for the years 2009 to 2012, citing weaker economic growth and the sharp rise in oil prices as factors curbing oil consumers' appetites.

In its latest medium-term report on the oil markets, the IEA forecast global demand will rise to 86.87 million barrels a day in 2008, down 1.4 million from the 88.27 million barrels projected in last year's report.

Supported by tensions in the Middle East, concerns about Nigerian production and ongoing talk about U.S. government control over speculative trading in the commodities markets, crude prices rose more earlier in the day.

At the currency markets on Tuesday, the dollar gave up earlier gains as currency traders turned their attention back to Thursday's job data release and a key European Central Bank meeting, losing their initial enthusiasm over better-than-expected factory data. The dollar index which measures the greenback against a basket of six major currencies, dipped to 72.374 from 72.529.

Natural gas in New York rose to a 30- month high as crude oil advanced. Natural gas for August delivery rose 15.2 cents (1.1%) to settle at $13.505 per million British thermal units.

Against this backdrop, gasoline for August delivery rose 1.43 cents (0.4%) to $3.5134 a gallon. Prices are up 53% in the past year.

Brent crude oil for August settlement today rose $0.84 (0.6%) to $140.67 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.

At the MCX, crude oil for July delivery closed at Rs 6,148/barrel, higher by Rs 70 (1.15%) against previous day’s close. Natural gas for July delivery closed at Rs 587.3/mmbtu, higher by Rs 13.5/mmbtu (2.3%).