Crude falls

Traders anticipate build up in supplies for last week

Crude prices ended substantially lower on Tuesday, 25 November, 2008. Crude prices fell after traders speculated that tomorrow's weekly inventory report will show rise in weekly supplies. But losses in crude price were limited due to the weak dollar.

On Tuesday, crude-oil futures for light sweet crude for January delivery closed at $50.77/barrel (lower by $3.73 or 6.8%) on the New York Mercantile Exchange. Earlier in the day, prices touched a low of $50.52. Prices reached a high of $147 on 11 July but have dropped almost 62% since then. Last week, prices fell by 13%. For this year in 2008, crude prices have dropped 52%.

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

At the currency market on Tuesday, the dollar fell against its major rivals after the Federal Reserve unveiled a new plan to support the issuance of debt backed by consumer and small-business debt. The dollar index shed 1%.

As per reports last week, The Organization of Petroleum Exporting Counties will trim supplies by 3.8% this month as members implement an October agreement. Thirteen OPEC members, due to meet in Cairo seven days from now, are set to supply 30.98 million barrels a day this month compared with 32.2 million a day in October.

Prior to this, 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 had 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 dropped 3.4% to end at $1.12 a gallon, while December heating oil fell 4.5% to $1.71 a gallon.

December natural gas closed down 3.3% to trade at $6.66 per million British thermal units. The December contract expired today. Natural gas for January delivery slumped 6.4% to end at $6.39 per million British thermal units.

At the MCX, crude oil for November delivery closed at Rs 2,578/barrel, lower by Rs 157 (5.7%) against previous day's close. Natural gas for November delivery closed at Rs 319.4/mmbtu, lower by Rs 17.2/mmbtu (5.1%).

The energy department is scheduled to release its weekly report on crude and crude product inventories tomorrow, 26 November at 10 a.m. in Washington.