Crude shoots up

Prices rise more than 3% as traders anticipate modest energy demand due to auto bailout

After slipping yesterday, crude prices went higher once again on Wednesday, 10 December, 2008. Prices rose after energy department's weekly inventory report showed that crude supplies rose less than expected in the last week. Crude also rose on anticipation that Washington's bailout plan foe the three biggies will spur energy demand in the coming months.

On Wednesday, crude-oil futures for light sweet crude for January delivery closed at $43.52/barrel (higher by $1.45 or 3.4%) on the New York Mercantile Exchange. Earlier in the day, prices touched a high of $46.17. Prices reached a high of $147 on 11 July but have dropped almost 71% 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 50%.

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 EIA reported 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 yesterday 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.

The White House confirmed today that it has reached an agreement with congressional Democrats on a $15 billion aid package for U.S. automakers. It's been reported that General Motors and Chrysler will be receiving the initial aid, as Ford is currently in a better financial position.

At the currency market on Wednesday, the U.S. dollar fell against most major currencies, but rose against the Japanese yen, as progress toward a $15-billion federal bailout for the nation's auto industry buoyed risk appetite among investors. The dollar index, a measure of the greenback against a trade-weighted basket of six currencies, fell 0.5% to 85.36.

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 rose 3 cents to end at 97 cents a gallon, while January heating oil fell 4 cents to end at $1.40 a gallon.

Natural gas for January delivery gained 11 cents to $5.69 per million British thermal units.

At the MCX, crude oil for December delivery closed at Rs 2,203/barrel, higher by Rs 72 (3.4%) against previous day's close. Natural gas for December delivery closed at Rs 276.9/mmbtu, higher by Rs 1.2/mmbtu (0.4%).