Crude continues to plunge

Prices end lower for fifth straight day

Oil prices ended lower for fifth consecutive day on Thursday, 12 February, 2009. Prices ended lower as Energy Department had yesterday reported larger than expected build up in crude inventories for the last week. Prices also fell as US stocks slipped today during earlier part of the day.

On Thursday, crude-oil futures for light sweet crude for March delivery closed at $33.98/barrel (lower by $1.96 or 5.5%) on the New York Mercantile Exchange. Oil has shed 17% in the last five sessions.

Prices reached a high of $147 on 11 July, 2008 but have dropped almost 77% since then. Year to date, in 2009, crude prices are lower by 26.3%. On a yearly basis, crude prices are lower by 67%.

EIA had reported yesterday that crude inventories excluding those in the Strategic Petroleum Reserve gained 4.7 million barrels to 350.8 million barrels in the week ended 6 February, 2009. Inventories at Cushing, Oklahoma, the delivery point for futures traded on the New York Mercantile Exchange, rose to 34.9 million, the highest level on record.

As per the report, total products supplied over the last four-week period averaged 19.8 million barrels per day, down by 1.3% compared to the similar period last year. Meanwhile, U.S. refineries operated at 81.6% of their operable capacity last week, the lowest in four months. EIA had also reported that gasoline stockpiles fell by 2.6 million barrels while distillate fuels, which include diesel and heating oil, declined by 1 million barrels.

In the stocks marker today, US stocks were steeply down earlier during the day before recovering in the final hour. Stocks regained momentum after news hit the wires that Obama administration is working on a plan to subsidize mortgage payments for troubled homeowners.

Paris based, IEA had reported yesterday that this year's global oil demand will fall by 1 million barrels a day, or 1.1%, from last year. If realized, it will be the biggest yearly drop since 1982. The IEA cited a worsening economic outlook across all regions as the reason for the weakness in oil demand.

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 lost 0.9% to $1.2583 a gallon while March heating oil gained 0.4% to $1.3218 a gallon.

March natural-gas futures fell 2.2% to $4.432 per million British thermal units.

At the MCX, crude oil for February delivery closed at Rs 1,713/barrel, lower by Rs 107 (5.9%) against previous day's close. Natural gas for February delivery closed at Rs 219.2/mmbtu, lower by Rs 6.3/mmbtu (2.8%).