Crude price continues to soften

IEA estimates oil demand rising 0.9% in FY 2008

The steady dollar and overall economic concerns related to the US economy pushed crude prices below the $115/barrel level once again today, Tuesday, 12 August, 2008. Prices fell to almost $112 earlier during the day. Most energy and metals futures dropped as the U.S. currency rose to a 5 1/2-month high versus the euro earlier today. Crude had lost almost 8% ($10) last week too.

Crude-oil futures for light sweet crude for September delivery closed at $113.01/barrel (lower by 1.44 or 1.3%) on the New York Mercantile Exchange. Futures earlier fell to an intraday low of $112.5 a barrel. Last week, crude prices ended lower by $9.9 (8%). Before that crude lost $15.92 (11%) in July, 2008, the biggest ever in dollars.

Prices also fell today following news that Russia ordered an end to military operations in Georgia, which relieved some anxiety over supplies from the region but some news reports said the conflict continued despite the order.

At the currency markets on Tuesday, the dollar was little changed against the euro after rallying 4.4% this month before today. Traders pared speculation on a rate hike by the European Central Bank later this year, after policy makers held the benchmark rate at 4.25% on 7 Aug, 2008. The dollar index which measures the greenback against a basket of currencies, fell to 76.14 from 76.21 in the previous day.

The International Energy Agency today reported that tight global oil demand and supply balance, which has helped push up crude prices to record highs, is easing as higher prices and slower economic growth in developed countries is curbing oil demand. Despite that, IEA inched up its 2009 demand estimate for oil products while keeping its 2008 view unchanged. For this year, it estimates oil demand rising 0.9% to 86.9 million barrels of oil a day. For 2009, it estimates rising 1.1% to 87.8 million barrels.

In a separate report today, the U.S. Energy Department's Information Administration lowered its outlook for oil prices, citing slower demand growth and rising production capacity.

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 16.7% till date.

Brent crude oil for September settlement fell $1.52 cents (1.4%) to settle at $111.15 a barrel on London's ICE Futures Europe exchange.

Against this background, September reformulated gasoline fell by 2.3 cents to close at $2.8432 a gallon and September heating oil shed 4.1 cents to end at $3.0781 a gallon.

Natural gas in New York was little changed, erasing an earlier advance, as crude oil slipped to a 14-week low and the dollar held against the euro. Natural gas for September delivery fell 1.9 cents to settle at $8.33 per million British thermal units.

At the MCX, crude oil for August delivery closed at Rs 4,833/barrel, higher by Rs 68 (1.4%) against previous day’s close. Natural gas for August delivery closed at Rs 354.1/mmbtu, higher by Rs 5.1/mmbtu (1.5%).