Crude back at $60

Prices drop by almost $5 for second consecutive day

Crude prices dropped by a huge amount on Thursday, 06 November, 2008. Economic concerns and weak economic report were the main reasons for this drop. Also yesterday’s weekly inventory report stating that motor gasoline inventories witnessed unexpected jump pressured crude prices.

On Thursday, crude-oil futures for light sweet crude for December delivery closed at $60.77/barrel (lower by $4.53 or 7%) on the New York Mercantile Exchange. Prices reached a low of $60.2 during intra day trading. Prices reached a high of $147 on 11 July but have dropped almost 63% since then. Last week, prices rose by 5.7%. On a yearly basis, crude price is lower by 37%. For this year in 2008, crude prices have dropped 38%.

For the month of October, 2008, crude prices ended lower by 32.6%, the biggest monthly drop since 1983.

At the currency market today, the dollar gained as much as 1.6% against a weighted basket of six major currencies after the Bank of England and the European Central Bank slashed benchmark interest rates to stimulate slumping economies. The Bank of England took drastic action earlier Thursday, slashing its key interest rate to 3% from 4.5% previously. The European Central Bank, which sets monetary policy for the 15-nation euro zone, and the Swiss National Bank also moved to cut rates by smaller amounts.

The Labor Department reported today that the number of U.S. residents collecting state unemployment benefits reached the highest level in 25 years, rising by 122,000 to a seasonally adjusted 3.84 million in the week ending 25October, 2008.

Meanwhile, the number of first-time applications for benefits fell by 4,000 to 481,000 in the week ending 1 November, 2008. The jobless claims report shows businesses are laying off workers at a rapid pace, while finding a replacement job is ever harder.

Separately, another report showed that nonfarm business productivity rose at a 1.1% annual rate in the third quarter. This was generally in-line with expectations.

The EIA reported yesterday that crude supplies were unchanged last week and remained at 311.9 million barrels for the week ended 31 October, 2008. Data show that crude stocks had climbed nearly 22 million barrels over the last six weeks. But motor gasoline supplies climbed unexpectedly, up by 1.1 million barrels in the latest week to 196.1 million. Supplies of distillates, which include heating oil, rose 1.2 million to 127.8 million.

OPEC officials decided last month 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 cut by 1.5 million in November.

Last month, 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.

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, December reformulated gasoline fell 8 cents to $1.34 a gallon and December heating oil dropped 11 cents to end at $1.94 a gallon.

December natural-gas futures dropped 27 cents to $6.98 per million British thermal units. EIA reported today that natural-gas inventories rose by 12 billion cubic feet for the week ended 31 October, 2008.