Crude drops

Prices shed more than $1 after yesterday's rally

After rallying yesterday, crude prices slipped lower once again on Tuesday, 09 December, 2008. Prices fell due to a couple of factors. First was the fact that traders anticipated that tomorrow's weekly inventory report will show build up in crude inventories. Next, crude also fell on chances of OPEC going for a production cut to restore crude prices in its next meeting.

On Tuesday, crude-oil futures for light sweet crude for January delivery closed at $42.07/barrel (lower by $1.64 or 3.7%) on the New York Mercantile Exchange. It touched a low of $41.83 during intra day trading. Prices reached a high of $147 on 11 July but have dropped almost 74% since then. On 5 Dec, 2008, prices touched a low of $40.5. Last week, prices coughed up 25%. That was the largest weekly loss for crude in past twenty five years. For this year in 2008, crude prices have dropped 52%.

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.

EIA reported today in its monthly short-term energy outlook that the current global economic slowdown is now projected to be more severe and longer than it expected last month, leading to further reductions of global energy demand and additional declines in oil and other energy prices. The EIA is now expecting world GDP growth to slow to 0.5% in 2009, down from an expectation of 1.8% in last month's outlook.

At the currency market on Tuesday, the dollar fell sharply against the Japanese yen, but was mixed against other major currencies. Dollar weakness typically boosts dollar-denominated commodities such as gold. The dollar index, which tracks the performance of the greenback against a trade-weighted basket of six major currencies gained 0.3%.

The Organization of Petroleum Exporting Countries ended meeting in Cairo last month without any decision on a production cut to restore crude prices. OPEC President and Algerian Oil Minister Chakib Khelil said he expects oil demand to decline from a month ago, and said the group would take necessary action on 17 December when it meets in Oran, Algeria.

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 2 cents to end at 94 cents a gallon and January heating oil dropped 5 cents to end at $1.44 a gallon.

Natural-gas futures for January delivery edged up 1 cent to finish at $5.58 per million British thermal units.