Crude’s sudden more than $5 gain

Prices perk up as tensions between Georgia and Russia continue

Crude oil prices registered substantial rise on Thursday, 21 August, 2008 as tensions between Russia and Georgia continued. Prices also rose the dollar weakened against its rivals. At the end, prices gave up some its gains but still ended substantially higher.

Crude-oil futures for light sweet crude for October delivery closed at $121.18/barrel (higher by $5.62 or 4.9%) on the New York Mercantile Exchange. Earlier, it rose by more than 6%. Last week, crude prices ended lower by 1.2%. Before that crude lost $15.92 (11%) in July, 2008, the biggest ever in dollars. Prices are 74% higher than a year ago. Prices reached a high of $147 on 11 July but have dropped 16% since then.

At the currency markets on Thursday, the U.S. dollar extended its losses against most major currencies, losing more ground after downbeat U.S. economic data exacerbated a sell-off linked to rebounding oil prices. The dollar index, which measures the greenback against a trade-weighted basket of currencies, was at 76.06, down from 76.926 in previous session.

The signing of a missile-shield agreement between the U.S. and Poland yesterday bolstered concern that Russia may disrupt the flow of oil. The oil market has been concerned about oil supplies in the region. Russia is the world's second-largest oil producer after Saudi Arabia, and the Caspian Sea is a major route for oil shipment.

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 17% till date.

Brent crude oil for October settlement rose $5.8 (5.1%) o close at $120.16 a barrel.

Against this background, September reformulated gasoline rose by 13.5 cents to close at $3.0452 a gallon, and September heating oil gained 13.1 cents to end at $3.3006 a gallon.

Natural gas in New York advanced as crude oil surged more than $5 a barrel and utilities and factories bought the fuel after prices fell to a six-month low. Natural gas for September delivery rose 17.5 cents (2.2%) to settle at $8.252 per million British thermal units.

At the MCX, crude oil for September delivery closed at Rs 5,255/barrel, higher by Rs 275 (5.5%) against previous day’s close. Natural gas for September delivery closed at Rs 363.1/mmbtu, higher by Rs 5.1/mmbtu (1.4%)