Crude registers massive jump

Prices rise more than 10% as traders anticipate big production cut by OPEC

Crude prices shot up drastically today, Thursday, 11 December, 2008. This was the second consecutive rise for crude prices. Prices rose today due to the weak dollar and the on anticipation that OPEC will go for a drastic production cut in its next meeting scheduled next week.

On Thursday, crude-oil futures for light sweet crude for January delivery closed at $47.98/barrel (higher by $4.46 or 10.2%) on the New York Mercantile Exchange. Earlier in the day, prices touched a high of $49.12. Prices reached a high of $147 on 11 July but have dropped almost 61% 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 40%.

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.

At the currency market on Thursday, the U.S. dollar fell sharply against other major currencies as a surge in jobless claims and other negative economic data put the greenback under heavy selling pressure. The dollar index, a measure of the greenback against a trade-weighted basket of six currencies, fell 1.2% today.

The Labor Department reported on Thursday, 11 December, 2008 that the number of first-time filings for state unemployment benefits jumped by 58,000 to a 26-year high of 573,000. The number of people collecting unemployment benefits rose by 338,000 to stand at 4.43 million, also the highest since late 1982. The increase in continuing claims in the week ended 29 November was the most since 1974.

Initial claims represent job destruction, while the level of continuing claims indicates how hard or easy it is for displaced workers to find new jobs.

The EIA reported yesterday in its weekly inventory report that U.S. crude oil inventories rose by 400,000 barrels during the week ended 5 December, 2008 to stand at 320.8 million barrels. Market had expected a buildup of 2.7 million barrels in crude-oil stocks for the week.

The report also detailed that total motor gasoline inventories increased by 3.8 million barrels last week, and distillate fuel inventories increased by 5.6 million barrels.

EIA reported earlier this week 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.

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 11 cents, or 11%, to end at $1.08 a gallon and January heating oil gained 11 cents to finish at $1.51 a gallon.

EIA reported today that U.S. natural-gas inventories fell by 67 billion cubic feet to stand at 3,291 billion cubic feet during the week ended 5 December. January natural gas ended down 9 cents at $5.60 per million British thermal units on Nymex.

At the MCX, crude oil for December delivery closed at Rs 2,336/barrel, higher by Rs 133 (6%) against previous day's close. Natural gas for December delivery closed at Rs 273.2/mmbtu, lower by Rs 3.7/mmbtu (1.3%).