Crude continues to drop

Prices end more than 5% lower after rising 5% higher earlier

Oil prices gave up earlier gains and ended lower on Tuesday, 10 February, 2009 as traders anticipated that the stimulus plan that has been planned by Obama administration will not be enough to fuel energy demand in the coming months. The strong dollar also impacted crude prices today.

On Tuesday, crude-oil futures for light sweet crude for March delivery closed at $37.55/barrel (lower by $2.01 or 5.1%) on the New York Mercantile Exchange. Earlier during the day, it went up by 5.7%. It dropped below the $40 level for the first time in three weeks yesterday.

Prices reached a high of $147 on 11 July but have dropped almost 75% since then. Year to date, in 2009, crude prices are lower by 16.5%. On a yearly basis, crude prices are lower by 60%.

In recent developments in Washington today, Treasury Secretary Timothy Geithner said in a speech that the government may spend as much as $1 trillion to rescue banks. The Senate passed an $838 billion stimulus bill, moving it toward final congressional action. He also said that the Treasury and other federal agencies will partner with private capital to create a fund for troubled bank assets that could produce up to $1 trillion in financing capacity.

In the currency market today, the dollar index ended higher by 0.6%.

Traders also anticipated today that tomorrow's weekly inventory report will show a buildup in crude inventories for last week.

Crude prices had ended FY 2008 lower by 54%, the largest yearly loss since trading began at Nymex.

OPEC has been trying to cut production consistently in order to step up prices from their current low levels. OPEC agreed to reduce production by a record amount of 2.2 million barrels a day, starting from 1 January, 2009 adding to previous cuts of 2 million barrels. Overall, the reduction is equal to about 5% of the world's oil demand.

Against this background, March reformulated gasoline rose 1% to $1.2595 a gallon and March heating oil lost 0.5% to $1.3453 a gallon.

March natural gas futures fell 4% to $4.617 per million British thermal units.

At the MCX, crude oil for February delivery closed at Rs 1,909/barrel, lower by Rs 73 (3.7%) against previous day's close. Natural gas for February delivery closed at Rs 226.7/mmbtu, lower by Rs 6.2/mmbtu (2.7%).