Crude drops again

Prices slip at the end after crossing $70 earlier

Crude prices fell today on Thursday, 30 October, 2008 and closed below the $66/barrel. The firm dollar and the current global crisis were the main reasons behind the fall in crude prices today.

There were also reports in the market that OPEC was thinking about another production cut. Last week, OPEC had decided on a production cut. The decision, however, failed to perk up crude prices as traders still remained extremely worried that an ongoing recession will curtail demand for energy in the coming months.

On Thursday, crude-oil futures for light sweet crude for December delivery closed at $65.96/barrel (lower by $1.53 or 2.4%) on the New York Mercantile Exchange. Prices earlier touched a high of $70.4. Prices reached a high of $147 on 11 July but have dropped almost 53% since then. Last week, prices dropped by 11% after shedding 7.5% in the week prior to that. On a yearly basis, crude price is lower by 33%. For this year in 2008, crude prices have dropped 33%.

The U.S. Energy Information Administration reported that yesterday that crude supplies climbed 500,000 barrels to 311.9 million for the week ended 24 October, 2008. They've climbed 21.7 million barrels in five weeks.

EIA also reported that motor gasoline supplies unexpectedly fell for the first time in five weeks, down 1.5 million barrels for the week ended Oct. 24 to total 195 million barrels. Supplies of the fuel had climbed 17.8 million barrels is the past four weeks. But they are still 2% below the year-ago level. And distillate stocks, which include heating oil, rose 2.3 million barrels to 126.6 million.

The report also stated that demand for petroleum products was down 7.8% over the last four-week period, compared with the same time a year ago. It averaged almost 18.9 million barrels per day during the period. Of that, motor gasoline demand averaged 8.9 million barrels per day, down 3.4% from the same time a year ago.

OPEC officials decided last Friday at its meeting at Vienna that OPEC will pare production by 1.5 million barrels a day w.e.f 1 November, 2008. The official production quota is currently 28.8 million barrels, and it will be cut by 1.5 million in November.

Last week, the Centre for Global Energy Studies said that global oil demand may fall for the first time in 15 years in 2008 and stagnate next year.

Earlier this month, in the latest monthly prediction, the Organization of the Petroleum Exporting Countries said 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.

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 4.3% to close at $1.467 per gallon, while November heating oil shed 0.8% to finish at $1.9841 per gallon.

Prices for natural gas dropped more than 5% after the EIA reported a 46 billion cubic-foot increase in natural-gas supplies in storage for the week ended 24 October. December natural gas fell by 5.1% to close at $6.431 per million British thermal units.