Big drop for crude

Prices drop by almost $4 on inflation worries at US

Crude prices ended substantially lower on Monday, 04 August, 2008 as the dollar fluctuated and demand concerns regarding oil from US once again cropped up. Prices dropped below $120 level during intra day trading after a long time but stayed for a very short time.

Crude-oil futures for light sweet crude for September delivery closed at $121.41/barrel (lower by 3.69 or 3%) on the New York Mercantile Exchange. Futures earlier fell to an intraday low of $119.5 a barrel. Last week, crude prices ended higher by 1.5%. Crude lost $15.92 (11%) in July, 2008, the biggest ever in dollars. It's now 18% lower than the $147.27 record high hit last on 10 July, 2008.

Government data today showed an increase in inflation at USA. June personal income and spending report was mixed, with investors showing disappointment regarding the report's inflation component. Month-over-month, personal income rose 0.1% (-0.2% consensus), personal spending increased 0.6% (0.4% consensus) and core PCE, the Fed's preferred inflation measure, rose 0.3% (+0.2% consensus). The PCE price index was up 0.8% month-over-month and as a result, real spending and income actually fell in June.

This report fuelled concerns that rise in inflation might dampen the forthcoming demand for oil and crude products from the largest consumer of oil, US.

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 55% higher than a year ago. For the year, crude is up by 28% till date.

Against this background, September reformulated gasoline shed 8.4 cents to close at $3.0002 a gallon in Nymex action, while September heating oil dipped 8.7 cents to end at $3.3501 a gallon.

Natural gas in New York fell to the lowest in six months amid speculation a storm in the Gulf of Mexico will not disrupt production. Natural gas the September futures contract skidded 66.3 cents (7.1%) to close at $8.726 per million British thermal units.

At the MCX, crude oil for August delivery closed at Rs 5,126/barrel, lower by Rs 181 (3.4%) against previous day’s close. Natural gas for August delivery closed at Rs 369.9/mmbtu, lower by Rs 28/mmbtu (7%).

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