Crude slips marginally

Oil continues to lose as OPEC mulls over another production cut

Crude prices rose fell by more than half a dollar on Tuesday, 28 October, 2008 and closed below the $63/barrel level as traders continued to doubt about energy demand in the coming months. 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 Tuesday, Crude-oil futures for light sweet crude for December delivery closed at $62.73/barrel (lower by $0.49 or 0.7%) on the New York Mercantile Exchange. Prices earlier touched a low of $61.61. Prices reached a high of $147 on 11 July but have dropped almost 58% 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 31%. For this year in 2008, crude prices have dropped 38%.

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 1.5% to end at $1.4555 per gallon, while November heating oil finished almost flat at $1.912 per gallon.

November natural-gas futures gained 1.1% to end at $6.186 per million British thermal units.

At the MCX, crude oil for November delivery closed at Rs 3,250/barrel, lower by Rs 61 (1.8%) against previous day’s close. Natural gas for November delivery closed at Rs 316.7/mmbtu, lower by Rs 2.2/mmbtu (0.7%).

The U.S. Energy Information Administration will offer its weekly update on petroleum supplies tomorrow, Wednesday, at 10. am E.T.