Crude slips

Traders still doubt the demand for energy despite financial recovery package

Crude prices slipped today below the $80 mark on Tuesday, 14 October, 2008 despite the recovery effort by US to solve the financial crisis partly were well accepted by investors. The expectations among investors were left largely intact that the financial crisis will hasten a decline in consumption of oil.

Crude-oil futures for light sweet crude for December delivery closed at $78.63/barrel (lower by $2.56 or 3.2%) on the New York Mercantile Exchange. Prices rose to a high of $82.52 during intra day trading. Prices reached a high of $147 on 11 July but have dropped almost 47% since then. Crude coughed up 17% last week. On a yearly basis, crude price is higher by 6.5%.

Ahead of the open on Wall Street, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke discussed the government's bank rescue plan, offering reassurances that it would work.

As per the plan announced today, the Treasury will buy up to $250 billion in preferred stock from qualifying U.S. financial institutions. Participation in the plan is voluntary, although it appears that there will be plenty of firms taking the Treasury up on its offer. Nine of the largest financial institutions in the world will receive $125 billion, including Bank of America, Citigroup, JPMorgan Chase, Morgan Stanley and Wells Fargo. To participate in the program, firms will have to agree to executive compensation limits, including the elimination of golden parachutes.

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 rose 3.3 cents to close at $1.8848 a gallon on Nymex, November heating oil shed 8.1 cents to end at $2.2597 a gallon.

November natural gas futures added 3.9 cents to close at $6.727 per million British thermal units.

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.

At the MCX, crude oil for November delivery closed at Rs 3,929/barrel, lower by Rs 43 (1.02%) against previous day’s close. Natural gas for October delivery closed at Rs 326.3/mmbtu, higher by Rs 3.1/mmbtu (0.9%).