Crude drops again

Crude supplies register buildup for the first time in six weeks

Crude oil prices fell by almost $2 on Wednesday, 01 October, 2008 after energy department reported buildup in crude supplies for the first time in six weeks. Prices also softened on overall global energy demand concerns.

Crude-oil futures for light sweet crude for November delivery closed at $98.89/barrel (lower by $1.78 or 1.8%) on the New York Mercantile Exchange. Prices fell to a low of $95.95 during intra day trading. Prices reached a high of $147 on 11 July but have dropped 34% since then.

The EIA wing of the Energy Department reported today, Wednesday, 01 October, 2008 that at US, crude supplies rose for the first time in six weeks, by 4.3 million barrels for the week ended 26 September. They stood at 294.5 million barrels. Crude supplies had fallen a total of 15.7 million barrels in the prior five weeks. Refinery activity climbed as the Gulf of Mexico continued to recover from Hurricanes Gustav and Ike. Refinery utilization was at 72.3% compared with 66.7% of capacity a week earlier.

EIA also reported that motor gasoline supplies also climbed - for the first time in ten weeks, up 900,000 barrels in the latest week to stand at 179.6 million barrels. But after dropping 38.4 million barrels in nine weeks, supplies of the fuel were 9.7% below the year ago level. Distillate inventories, which include heating oil, fell for a fifth week in a row, down 2.3 million to 123.1 million. They're 8.1% below the year-ago level and in five weeks, have tallied a decline of 9.7 million barrels.

The report also showed that demand for petroleum products over the last four weeks has averaged 19 million barrels per day, down 7.1% from the same time a year ago. Of that, motor gasoline demand has averaged almost 8.9 million barrels per day, down 4.5% from the same time a year ago.

For the third quarter of the year that ended yesterday, 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%. For the year, prices are still up by 3.4%.

Investors are concerned that a prolonged credit crisis would further undermine an already waning demand for energy as global growth slows down.

Against this background, November reformulated gasoline fell 9.8 cents to close at $2.36 a gallon, and November heating oil shed 4.8 cents to end at $2.8469 a gallon.