Crude gives up earlier gains

Prices fall by more than a dollar after rising 8% earlier

Crude prices gave up earlier gains and finally closed more than a dollar lower on Monday, 15 December, 2008. Prices fell as traders anticipated that forthcoming production cut to be announced by OPEC will be insufficient to boost crude prices. Today's economic data once again reassured the fact that US economy is well into recession.

On Monday, crude-oil futures for light sweet crude for January delivery closed at $44.51/barrel (lower by $1.77 or 3.8%) on the New York Mercantile Exchange. Earlier in the day, prices touched a high of $50.05. Prices reached a high of $147 on 11 July but have dropped almost 69.7% 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 47%.

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.

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.

he Federal Reserve reported on Monday, 15 December, 2008 that the output of the USA's factories, mines and utilities fell 0.6% in November on broad-based weakness across manufacturing industries. Output fell in all the major manufacturing sectors - autos, computers, machinery and metals.

As per the report, industrial output in US has fallen 5.5% in the past year, while factory output is down 7.3% compared with November 2007, the steepest year-over-year decline since 1980. In November, capacity utilization in industry fell to a five-year low of 75.4% from a revised 76%. For manufacturing, capacity utilization fell to a six-year low of 72.3% from 73.4%.

At the currency market on Monday, the dollar fell 1.6% today against a weighted basket of six major currencies. Last week, the greenback tumbled 4%, the most since September 1985.

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 3.8% to $1.0369 a gallon, and January heating oil slid 2.2% to $1.4601 a gallon.

January natural-gas futures rose 2% to $5.595 per million British thermal units.

At the MCX, crude oil for January delivery closed at Rs 2,340/barrel, lower by Rs 76 (3.1%) against previous day's close. Natural gas for December delivery closed at Rs 271.1/mmbtu, higher by Rs 3.5/mmbtu (1.3%).