Crude drops below $75 for first time in last one year

OPEC and EIA cut their demand forecasts for oil

Crude prices slipped today below the $75 mark for the first time in a year on Wednesday, 15 October, 2008 despite the recovery effort by US to solve the financial crisis. The expectations among investors were left 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) 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 $74.54/barrel (lower by $4.09 or 5.2%) on the New York Mercantile Exchange. Prices fell to a low of $73.66 during intra day trading. Prices reached a high of $147 on 11 July but have dropped almost 49% since then. Crude coughed up 17% last week. On a yearly basis, crude price is lower by 13%. For this year in 2008, crude prices have dropped 22%.

In the US stock market on Wednesday, 15 October, the Dow fell by another 750 points despite good earning reports from Coco Cola, JP Morgan Chase and Intel. Drop in retail sales for month of September was responsible for today’s weakness in stocks as it once again highlighted limited spending ability of today’s US consumers.

The Commerce Department reported today that U.S. retail sales fell 1.2% in September, 2008, the worst drop in three years and the third decline in a row. It just sent another signal that the US economy has sunk into a recession. The 1.2% decline came against a forecast figure of 0.8% decline.

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

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 10.3 cents, or 5.4%, to finish at $1.7822 a gallon on Nymex, and November heating oil shed 6.9 cents to close at $2.1905 a gallon.

November natural-gas futures closed 13.5 cents lower at $6.592 per million British thermal units after trading as low as $6.56.







The U.S. Energy Information Administration will release its petroleum supply data on Thursday at 11 a.m. EDT, a day late this week due to Monday's Columbus Day holiday. The department's report is forecast to show that U.S. crude oil and gasoline inventories rose last week. The natural gas inventory data is also scheduled for tomorrow.

At the MCX, crude oil for November delivery closed at Rs 3,728/barrel, lower by Rs 201 (5.1%) against previous day’s close. Natural gas for October delivery closed at Rs 324.1/mmbtu, lower by Rs 2.2/mmbtu (0.67%).