Crude above 70$

CRUDE OIL

Crude back at $70

Strong dollar pushes down dollar denominated commodities

Crude prices fell today, Tuesday, 21 October, 2008 and closed at the $70 level once again. Prices fell as Organization of Petroleum Exporting Countries (OPEC) mulled over a production cut at its 24 October, meeting at Vienna for the current low crude prices. The strong dollar was the main reason for the falling crude price. Last week, OPEC had cut its 2009 demand forecast because of ``dramatically worsening'' conditions in financial markets.

Crude-oil futures for light sweet crude for November delivery closed at $70.89/barrel (lower by $3.36 or 4.5%) on the New York Mercantile Exchange. Prices reached a high of $147 on 11 July but have dropped almost 52% since then. Last week, prices dropped by 7.5%. On a yearly basis, crude price is lower by 20%. For this year in 2008, crude prices have dropped 27%. The November contract expired today. The more-active December contract fell $2.21 (3%) to settle at $72.18 a barrel.

Chakib Khelil, OPEC’s president said yesterday that OPEC might pare production by 1 million to 2 million barrels a day in stages at an 24 October meeting to stabilize prices.

In the currency market on Tuesday, the dollar rose to the highest level in 20 months against the euro, as investors focused on the U.S. financial rescue package and further stimulus hoped to provide a needed boost to the economy. The dollar index, the weighted basket of six major currencies, climbed to the highest since March 2007. The dollar rose to a 19-month high against the euro on bets that the European Central Bank will cut borrowing costs at a faster pace than the Federal Reserve.

In the latest monthly prediction, the Organization of the Petroleum Exporting Countries said last week that global oil consumption will grow 550,000 barrels a day this year compared with a year ago, down 330,000 barrels from last month's forecast. Total consumption will stand at 86.5 million barrels a day. For the next year, demand will grow 800,000 barrels a day, down 100,000 barrels from OPEC's September prediction.

The Energy Information Administration, the statistics arm of the U.S. Energy Department, also lowered its growth outlook for this year's global oil consumption by 350,000 barrels from a month ago last week.

For the third quarter of the year crude prices ended lower by 28%. This was the biggest quarterly drop since 1991. Before that, crude prices had gained 38% in the second quarter of this year. It was the biggest quarterly increase in nine years. For the month of September, prices registered drop of 13%.

Against this background, November reformulated gasoline fell 2.8 cents, or 1.6%, to end at $1.6919 a gallon. November heating oil fell 3.3 cents, or 1.5%, to close at $2.1771 a gallon.

November natural-gas futures finished at $6.844 per million British thermal units, up 10.3 cents.

At the MCX, crude oil for November delivery closed at Rs 3,589/barrel, lower by Rs 156 (4.1%) against previous day’s close. Natural gas for November delivery closed at Rs 348.2/mmbtu, higher by Rs 0.3/mmbtu (0.08%).

EIA will report the latest inventory status of crude and crude products tomorrow at 10 am E.T from Washington.