Crude takes huge leap

Crude prices ended substantially higher on Monday, 24 November, 2008. Crude prices gained after a strong rally at Wall Street was spurred by the news of bailout in the financial sector. Prices also rose due to a weak dollar.

On Monday, crude-oil futures for light sweet crude for January delivery closed at $54.5/barrel (higher by $4.51 or 9.2%) on the New York Mercantile Exchange. Earlier in the day, prices touched a high of $55.3. Prices reached a high of $147 on 11 July but have dropped almost 56% since then. Last week, prices fell by 13%. For this year in 2008, crude prices have dropped 46%.

Brent crude oil for January settlement rose $4.74 cents (9.6%) to $53.93 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.

It was mainly the financial sector that has come to market's rescue today after news hit the wires that Citigroup is getting rescue money from the government. The Treasury will buy $20 billion in preferred stock yielding 8%, which follows the $25 billion investment in Citi following the first round of TARP preferred stock purchases. The Treasury, Fed and FDIC will provide guarantees for up to $306 billion of troubled assets in exchange for $7 billion in preferred stock and warrants for 254 million shares of common stock at a strike price of $10.61. Citi will absorb the first $29 billion in losses on the troubled assets and then 10% on any remaining losses.

At the currency market on Monday, the dollar index, a measure of the greenback against a trade-weighted basket of six major currencies, fell to 85.912 from 87.658.

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, January reformulated gasoline rose 7.3% to $1.1425 a gallon, and January heating oil gained 5% to $1.7844 a gallon.

Natural gas for December delivery added 2.6% to $6.48 per million British thermal units.

At the MCX, crude oil for November delivery closed at Rs 2,735/barrel, higher by Rs 156 (5.9%) against previous day's close. Natural gas for November delivery closed at Rs 336.6/mmbtu, higher by Rs 8.1/mmbtu (2.4%).