Crude gives up more than previous day’s gains

Prices settle lower as tensions between Georgia and Russia ease and dollar strengthens

Crude oil prices registered substantial drop on Friday 22 August, 2008 as tensions between Russia and Georgia eased. Prices also fell as the dollar strengthened against its rivals, mainly the British pound. At the end, prices ended marginally higher for the week.

Crude-oil futures for light sweet crude for October delivery closed at $114.59/barrel (lower by $6.62 or 5.4%) on the New York Mercantile Exchange. A day earlier, on Thursday, prices had shot up by almost $5.6. For the week, crude prices ended higher by 0.6%. Crude had lost $15.92 (11%) in July, 2008, the biggest ever in dollars. Prices are 68% higher than a year ago. Prices reached a high of $147 on 11 July but have dropped 21% since then.

At the currency markets on Friday, the U.S. dollar rose strongly mainly against the British pound. The pound lost ground after revised data showed the U.K. economy ground to a halt in the second quarter. The move aided a broad rebound by the dollar, which was also buoyed by falling crude-oil prices and a round of weak industrial new orders data for the euro zone. The dollar index, which measures the greenback against a trade-weighted basket of currencies, was at 76.81, up from 76.030 a day before.

Concerns over Russia's conflict with Georgia also eased a bit on Friday, after reports that Russia said its pullback from most Georgian territories was complete.

The Energy Information Administration reported last Wednesday that motor gasoline supplies dropped for a fourth straight week but crude supplies rose the most in a week since 2001.

In a monthly oil report issued last week, the Organization of the Petroleum Exporting Countries (OPEC) said that oil demand has been "badly hurt" this summer by the slowing economy and high oil prices. Transport and industrial fuels declined the most, sending USA’s total oil demand down by 3.8%, or 0.8 million barrels per day in the first seven months of the year.

Crude prices had 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%. For the year, crude is up by 12% till date.

Against this background, September reformulated gasoline closed down 17.7 cents, or 5.8%, to end at $2.8686 a gallon. It was still 0.3% higher for the week. September heating oil slipped by 17 cents, or 5.1%, to end at $3.1311 a gallon, finishing 0.4% higher for the week.

September natural gas slid 40.9 cents to close at $7.843 per million British thermal units. It ended the week with a loss of 3.1%.

At the MCX, crude oil for September delivery closed at Rs 4,998/barrel, lower by Rs 73 (1.43%) against previous day’s close. Natural gas for October delivery closed at Rs 358.7/mmbtu, lower by Rs 3.8/mmbtu (1.04%).