Crude drops below $40

Demand concerns take crude prices lower

Oil prices gave up earlier gains and ended lower on Monday, 09 February, 2009 as traders anticipated that the stimulus plan that has been planned by Obama administration will not be enough to fuel p energy demand in the coming months. The weak dollar limited the fall in crude prices today.

On Monday, crude-oil futures for light sweet crude for March delivery closed at $39.6/barrel (lower by $0.61 or 1.5%) on the New York Mercantile Exchange. Earlier during the day, it touched a high of $42.43. It dropped below the $40 level for the first time in three weeks.

Prices reached a high of $147 on 11 July but have dropped almost 70% since then. Year to date, in 2009, crude prices are lower by 11.4%. On a yearly basis, crude prices are lower by 58%.

Investors today were waiting for the bank bailout plan which was supposed to be drafted by Treasure Secretary early today, but have got postponed till 11 am E.T, tomorrow. The broader economy stimulus plan has also been garnering attention and there have been reports in the market that the $827 billion stimulus plan could come to vote by the end of this week.

In the currency market today, the dollar index ended lower by 0.5%.

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 fell 0.3% to $1.2471 a gallon and March heating oil lost 0.6% to stand at $1.3523 a gallon.

Natural gas for March delivery rose 0.7%, to $4.807 per million British thermal units.

At the MCX, crude oil for February delivery closed at Rs 1,982/barrel, higher by Rs 34 (1.7%) against previous day's close. Natural gas for February delivery closed at Rs 235/mmbtu, lower by Rs 3.7/mmbtu (1.6%).