Crude goes below $56

Prices drop to such levels for first time in twenty two months

Crude prices ended substantially lower on Wednesday, 12 November, 2008 and dropped below the $56 mark for the first time in twenty two months. Crude prices following the big drop in US stocks at Wall Street today. Investors became concerned that global recession will definitely lower the demand for crude in coming months.

On Wednesday, crude-oil futures for light sweet crude for December delivery closed at $56.16/barrel (lower by $3.17 or 5.3%) on the New York Mercantile Exchange. Prices reached a low of $55.13 during intra day trading. Prices reached a high of $147 on 11 July but have dropped almost 71.6% since then. Last week, prices fell by 10%. On a yearly basis, crude price is lower by 40%. For this year in 2008, crude prices have dropped 46.5%.

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

At the currency market on Wednesday, the dollar index, a measure of the greenback against a trade-weighted basket of six major currencies, was at 87.557, up from 87.250 late Tuesday. The U.S. dollar gained ground against the British pound and Canadian dollar.

In its latest monthly report issued today, EIA said that it expects world oil demand to rise almost 100,000 barrels per day in 2008 and to remain "virtually flat" in 2009. In US, it expects petroleum-product demand to drop 5.4%, or 1.1 million barrels per day, from the 2007 average to 19.6 million barrels per day in 2008. That marks the first time since 1980 that annual total petroleum consumption is expected to decline by more than 1 million barrels per day. The government also predicts an average crude price of $101.45 for this year and $63.50 for 2009.

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.

The IEA already has cut its 2008 forecast about 1.3 million barrels a day in seven revisions this year. Last week, it published a summary of its annual World Energy Outlook, slashing its 2030 projection by 9.4% to 106 million.

Before that, earlier last 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.

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 5.8 cents to close at $1.2481 a gallon and December heating oil shed 9.4 cents to end at $1.8354 a gallon.

Natural gas for December delivery fell 30 cents, or 4.5%, to finish at $6.405 per million British thermal units.