Crude shoots up

Prices rise by more than 14% in one session

Oil prices shot up on Thursday, 19 February, 2009. Prices rose substantially after Energy Department reported unexpected drop in crude inventories for last week. Prices had been dropping in the past few sessions due to the ongoing recession concerns gripping the overall US economy and also many parts of the world. The report came a day late due to the Presidents Day holiday on Monday.

On Thursday, crude-oil futures for light sweet crude for March delivery closed at $39.48/barrel (lower by $4.86 or 14%) on the New York Mercantile Exchange. The March contract will expire tomorrow. The more active April contract rose 7.4% to $40.18. Last week, crude ended lower by 6.6%.

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 8%. On a yearly basis, crude prices are lower by 60%.

EIA reported today that U.S. oil inventories fell 200,000 to stand at 350.6 million barrels in the week ended 13 February, 2009. Market had expected today's report to show a buildup of crude inventories to the tune of 3 million barrels. Total products supplied over the last four-week period averaged 19.95 million barrels per day, down just 0.1% compared to the similar period last year. Excluding jet fuel, petroleum demand actually rose 1.2% from a year ago. U.S. refineries operated at 82.3% of their operable capacity last week, still a low level but up from the previous week's 81.6%.

The EIA also reported motor gasoline inventories increased by 1.1 million barrels last week, and distillate fuel inventories, which includes diesel and heating oil, decreased by 800,000 barrels.

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.

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 3.1% to $1.0986 a gallon and March heating oil rose 5% to $1.2045 a gallon.

Natural gas futures fell on Thursday after data showed U.S. inventories fell less than expected. Natural gas for March delivery fell 3.2%, to $4.078 per million British thermal units on the Nymex.