Crude glides up

Prices end higher after OPEC hints at another production cut

Oil prices shot up on Tuesday, 24 February, 2009. Prices rose after OPEC spoke about another production cut in coming months. Prices also rose today in synchronization with the rise in stocks at Wall Street.

On Tuesday, crude-oil futures for light sweet crude for April delivery closed at $39.96/barrel (higher by $1.52 or 4%) on the New York Mercantile Exchange. Last week, crude ended higher by 3.8%.

Prices reached a high of $147 on 11 July, 2008 but have dropped almost 74% since then. Year to date, in 2009, crude prices are lower by 7.9%. On a yearly basis, crude prices are lower by 68%.

In Wall Street on Tuesday, US stocks bounced back. Couple of strong earning reports from retailers and news percolating that Microsoft might still be interested in a deal with Yahoo gave US stocks a much needed strong boost today.

Prices had been sliding since past couple of days after fear gripped the US economy that US banks might be nationalized. The gear eased a bit after President Barack Obama said that he is in favour of “privately owned” banks.

OPEC has been trying to cut production consistently in order to step up prices from their current low levels. As per reports during the weekend, Algerian Energy Minister Chakib Khelil said that OPEC is likely to reduce output in March, 2009. OPEC has already agreed to cut cartel quotas by 4.2 million barrels a day since September, equivalent to about 5% of global oil demand. The cartel is supposed to meet on 15 March at Vienna.

Against this background, March reformulated gasoline rose 3.9% to $1.0837 a gallon and March heating oil added 2.8% to $1.2082 a gallon.

Natural gas for March delivery rose 3.3% to stand at $4.236 per million British thermal units.

Recently, Paris based, IEA has reported 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.

At the MCX, crude oil for February delivery closed at Rs 1,932/barrel, lower by Rs 26 (1.3%) against previous day's close. Natural gas for February delivery closed at Rs 205.4/mmbtu, higher by Rs 1.4/mmbtu (0.7%).