Crude continues to drop

Prices touch a new two year low during intra day trading

Global economic worries and anticipation about lower energy demand in coming months took crude prices lower on Tuesday, 18 November, 2008. Crude prices also fell as traders speculated that tomorrow's weekly inventory report by the energy department will show build up in crude inventories for another straight week taking it to the third week in a row.

On Tuesday, crude-oil futures for light sweet crude for December delivery closed at $54.39/barrel (lower by $0.56 or 1%) on the New York Mercantile Exchange. It touched a low of $54.2 during intra day trading. Prices reached a high of $147 on 11 July but have dropped almost 63% since then. Last week, prices fell by 6.6%. On a yearly basis, crude price is lower by 45.7%. For this year in 2008, crude prices have dropped 49.2%.

Brent crude oil for January settlement declined 47 cents (0.9%) to $51.84 a barrel on London's ICE Futures Europe exchange

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

Among economic reports for the day, the Labor Department reported today that US. producer prices fell a record 2.8% in October, the most since 1947, as gasoline prices plummeted a record 24.9%. Overall finished energy goods prices fell 12.8%, the most since 1986, while food prices declined 0.2%. Excluding food and energy, core producer prices rose 0.4% in October.

In its latest monthly report yesterday, OPEC, reduced its forecast for average oil consumption next year by 530,000 barrels a day, or 0.6% to 86.68 million barrels a day. It revised lower its 2008 view by 260,000 barrels a day to show minor growth of 280,000 barrels a day. In 2009, it expects world oil demand to rise by more than 500,000 barrels a day, which is a downward revision of around 200,000 barrels.

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 decided to cut by 1.5 million in November. After that, Organization of the Petroleum Exporting Countries has pledged to cut production even deeper if prices are not in the $70-$90 range in its 1st December meeting.

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 closed down 3.8 cents at $1.1386 a gallon and December heating oil fell by 3.3 cents to end at $1.7579 a gallon.

December natural-gas futures edged lower by 1.7 cents to finish at $6.516 per million British thermal units.

At the MCX, crude oil for November delivery closed at Rs 2,800/barrel, lower by Rs 78 (2.7%) against previous day's close. Natural gas for November delivery closed at Rs 326.4/mmbtu, higher by Rs 6.7/mmbtu (2.09%).

The energy department is scheduled to release its weekly report on crude and crude product inventories tomorrow, 19 November at 11 a.m. in Washington.