Crude plunges more than 10%

Prices shed more than 10% in one session

Oil prices ended drastically lower on Monday, 02 March, 2009. Prices continued to fall after stocks continued to register losses at Wall Street after preliminary fourth quarter GDP report showed that the US economy contracted more than expected in US. Prices also fell due to the strong dollar. A stronger dollar pressures demand for dollar-denominated commodities, such as crude oil which become more expensive for holders of other currencies and also vice versa.

On Monday, Friday, crude-oil futures for light sweet crude for April delivery closed at $40.15/barrel (lower by $4.61 or 10.3%) on the New York Mercantile Exchange. Last week, crude ended higher by 12%. 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 lower by 6%. On a yearly basis, crude prices are lower by 67%.

On last Friday, in US, fourth quarter GDP was revised lower to reflect an annual rate of -6.2% versus a previously estimated -3.8%. The decrease in fourth quarter activity primarily reflected negative contributions from exports, personal consumption expenditures, equipment and software, and residential fixed investment. The report once again questioned the demand for oil in the coming months.

Pessimistic comments from investor Warren Buffet, couple of in line economic reports and huge losses registered by AIG in its latest quarter took stocks gliding down the line today. As hours passed, improvement in market sentiments was nowhere to be seen.

In the currency market on Monday, the dollar index, which measures the value of dollar against a basted of six weighted currencies, gained 0.7% after gaining 2.2% in February, 2009.

Prices had been sliding since past couple of months after fear gripped the US economy that US banks might be nationalized.

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.

Against this background, April reformulated gasoline fell 1.2% to $1.3725 a gallon and April heating oil dropped 2% to $1.2675 a gallon.

Natural gas for April delivery dropped 1.1% to $4.152 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 April delivery closed at Rs 2,235/barrel, lower by Rs 146 (6.1%) against previous day's close. Natural gas for February delivery closed at Rs 214.2/mmbtu, lower by Rs 0.7/mmbtu (0.3%).