Crude gives up earlier gains

Prices drop on demand concerns

Crude prices rose initially but ultimately ended with losses on Tuesday, 10 March, 2009. Prices rose today as traders continued to mull over further announcements of output cuts by OPEC this month. But then prices fell on demand concerns.

On Tuesday, crude-oil futures for light sweet crude for April delivery closed at $45.71/barrel (lower by $1.36 or 2.9%) on the New York Mercantile Exchange. Last week, crude ended higher by 1.7%. For the month of February, crude prices had ended higher by 1.5%.

Prices reached a high of $147 on 11 July, 2008 but have dropped almost 69% since then. Year to date, in 2009, crude prices are higher by 7.6%. On a yearly basis, crude prices are lower by 62%.

Prices rose today due to a weak dollar. Prices also rose as traders thought that OPEC will announce another production cut in March this year. But then, prices dropped as government released its oil demand figure for the year.

EIA reported today that oil will average $42 a barrel this year and $53 next year. A month ago the EIA had said that it expected prices to average $43 and $55, respectively. Also, world oil consumption is projected to decline by 1.4 million barrels a day in 2009. That's roughly 200,000 barrels a day more than the EIA had projected a month ago.

OPEC has been trying to cut production consistently in order to step up prices from their current low levels. There has been conflicting reports in the market regarding the fact 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.

Also at the Nymex on Tuesday, April reformulated gasoline fell 2.8% to $1.2972 a gallon, while April heating oil lost 1.4% to $1.1987 a gallon.

Natural gas for April delivery also lost ground, down 0.7% to $3.84 per million British thermal units.

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