Crude at new lows

Prices continue to drop drastically on demand concerns

Crude prices continued to drop substantially even today, Thursday, 18 December, 2008. Prices fell due to a strong dollar and also as OPEC announced another production cut yesterday. But prices fell as an impact of the weekly inventory report by the energy department that hit wires yesterday pointing towards lower energy demand.

On Thursday, crude-oil futures for light sweet crude for January delivery closed at $36.22/barrel (lower by $3.84 or 9.6%) on the New York Mercantile Exchange. Earlier in the day, prices touched a low of $35.98. Prices reached a high of $147 on 11 July but have dropped almost 75% since then. On 5 Dec, 2008, prices touched a low of $40.5. Last week, prices ended higher by almost 13%. Prior to that, prices coughed up 25% in the week before that. That was the largest weekly loss for crude in past twenty five years. For this year in 2008, crude prices have dropped 59%.

For the month of November, crude prices ended lower by 19.7%. Before this, for the month of October, 2008, crude prices had ended lower by 32.6%, the biggest monthly drop since 1983.

After a meeting in Oran, Algeria, the Organization of the Petroleum Exporting Countries agreed to cut 4.2 million barrels a day from its actual September production level of 29.045 million barrels a day. The production cut is effective on 1 January, 2009. Excluding previously announced cuts, OPEC will actually cut its daily production by 2.2 million barrels from current levels. That constitutes its biggest production cut ever.

At the currency market Thursday, on the dollar index gained 0.7% today.

The Energy Information Administration reported yesterday that that U.S. crude supplies rose by 500,000 barrels to stand at 321.3 million barrels during the week ended 12 December, 2008. At 321.3 million barrels, total U.S. crude inventories were 17.5 million barrels above the five-year average and 24.4 million barrels above year-ago levels. The EIA also reported an increase of 1.3 million barrels in gasoline stocks and a rise of 2.9 million barrels in distillate stocks last week.

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 fell 5 cents to end at 92 cents a gallon and January heating oil dropped 7 cents to $1.37 a gallon.

January natural gas futures fell 7 cents to finish at $5.55 per million British thermal units. EIA reported today that natural gas inventories fell by 124 billion cubic feet to stand at 3,167 billion cubic feet during the week ended 12 December, 2008.

At the MCX, crude oil for January delivery closed at Rs 2,096/barrel, lower by Rs 118 (5.3%) against previous day's close. Natural gas for December delivery closed at Rs 261.9/mmbtu, lower by Rs 1.4/mmbtu (0.53%).