Crude drops below $70

Weekly inventory report weighs on crude price

Crude prices slipped today, Thursday, 16 October, 2008 below the $70 mark for the first time in fourteen months. Prices dropped today as U.S. government report showed stockpiles increased more than twice as much as forecast. The expectations among investors are also largely intact that the financial crisis will hasten a decline in consumption of oil. At the same time, The Organization of Petroleum Exporting Countries (OPEC) yesterday 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 $69.85/barrel (lower by $4.69 or 6.3%) on the New York Mercantile Exchange. Prices fell to a low of $68.57 during intra day trading. Prices reached a high of $147 on 11 July but have dropped almost 52.5% since then. Crude coughed up 17% last week. On a yearly basis, crude price is lower by 16%. For this year in 2008, crude prices have dropped 28%.

The EIA reported today that crude and motor gasoline supplies each fell for a third week in a row, while distillate inventories fell for a seventh-straight week. Crude supplies rose 5.6 million barrels for the week ended 10 October to total 308.2 million barrels. They're up 18 million barrels over the past three weeks.

EIA report also showed that motor gasoline supplies climbed 7 million barrels to 193.8 million. They're up a total of 15.1 million barrels in three weeks. And distillate stocks were by 500,000 barrels to 122.1 million. They've lost 10.2 million barrels in seven weeks.

In the US stock market on Thursday, 16 October, the Dow fell by almost 350 points during the noon hours but ultimately recovered paring all of its losses and ended 300 points higher.

The dollar extended gains against the yen today but slipped against the euro as risk appetite perked up during a late recovery on Wall Street. The dollar index, which measures the greenback against a trade-weighted basket of six major currencies, was at 82.287, off its peak above 82.5, but still up from 81.551 in previous day’s trading.

In the latest monthly prediction, the Organization of the Petroleum Exporting Countries said yesterday 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 yesterday.

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%.

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 16 cents to close at $1.622 a gallon and November heating oil shed 10.3 cents to end at $2.0873 a gallon.

Natural gas was the lone gainer among the energy futures Thursday. The EIA released its latest data on natural-gas supplies in storage. The report showed that supplies rose 79 billion cubic feet for the week ended 10 October. November natural-gas futures gained 11.1 cents, or 1.7%, to close at $6.703 per million British thermal units.

At the MCX, crude oil for November delivery closed at Rs 3,610/barrel, lower by Rs 33 (0.9%) against previous day’s close. Natural gas for October delivery closed at Rs 333.2/mmbtu, higher by Rs 9.1/mmbtu (2.8%).