Crude rises

Prices rise by more than 6%

Crude prices rose for the second consecutive day on Monday, 29 December, 2008. Prices rose as tensions in the Middle East escalated. The relatively weak dollar was also the reason for the higher crude price today.

On Monday, crude-oil futures for light sweet crude for February delivery closed at $40.02/barrel (higher by $2.31 or 6%) on the New York Mercantile Exchange. During intra day trading, prices touched a high of $142.05. Prices reached a high of $147 on 11 July but have dropped almost 73% since then. Last week, prices ended lower by 11%. For this year in 2008, crude prices have dropped 54%.

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 strikes by Israel have heightened tensions in the Mid East region, increasing the geopolitical risk premium in the price on fears that there could be some disruption to crude supplies. As per reports, in the Gaza Strip, Israeli air strikes aimed at targets linked to militant group Hamas and it continued for a third day. Hamas said 300 Palestinians have died since Saturday.

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 on 17 December, 2008. 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.

Against this background, reformulated gasoline for February delivery rose 4 cents to end at 92 cents a gallon and February heating oil added 5 cents to $1.27 a gallon.

February natural gas futures rose 27 cents, or 5%, to $6.08 per million British thermal units.

At the MCX, crude oil for January delivery closed at Rs 1,872/barrel, higher by Rs 25 (1.4%) against previous day's close. Natural gas for January delivery closed at Rs 291.6/mmbtu, higher by Rs 7.1/mmbtu (2.5%).