Crude pares early gains

Prices drop as dollar strengthens in the wake of strong job report

A better than expected job report in US strengthened the dollar on Friday, 05 June, 2009, thereby pushing crude oil prices lower. The dollar rose on Friday following encouraging report that the intense pace of job destruction finally moderated in May, 2009 after the US economy witnessed one of the worst cases of layoffs in the past few months.

On Friday, crude-oil futures for light sweet crude for July delivery closed at $68.44/barrel (lower by $0.37 or 0.5%). It had earlier risen to a high of $70.32. Despite Friday's loss, for the week, crude ended higher by 3.2%.

Crude ended the month of May, 2009, higher by 30%. This was the largest month gain for crude in almost a decade. Prior to May, crude ended April and March, 2009 higher by 2.9% and 10.9% respectively. It rallied 11.3% in the first quarter. Oil prices had reached a high of $147 on 11 July, 2008 but have dropped almost 50% since then. Year to date, in 2009, crude prices are higher by 38%.

In the currency market on Friday, the dollar index, which weighs the strength of dollar against the basket of six other currencies, went up by 1%.

The Labor Department reported on Friday that the intense pace of job destruction finally moderated in May as U.S. nonfarm payrolls declined by 345,000, the fewest jobs lost in eight months. While the payroll loss was much better than expected and hinted at some improvement in the economy, the U.S. unemployment rate jumped to a 26-year high of 9.4% in May as the number of jobless Americans rose by 787,000 to 14.5 million. The decline in payrolls was much less than the 500,000 forecast. However, the unemployment rate was higher than the 9.2% expected.

During the week Goldman Sachs increased its 2009 oil price forecast to $85 a barrel, up from $65 a barrel previously.

EIA had reported on Wednesday, 03 June that U.S. commercial crude inventories for the week ended 29 May rose to 366 million barrels, up 2.9 million barrels. Market was expecting a decline to the tune of 2 million barrels. EIA also reported that total motor gasoline inventories decreased by 200,000 barrels on the week, while distillate supplies increased 1.6 million barrels.

OPEC, in its latest meeting, decided to keep production quotas unchanged, in line with expectations. The cartel, which accounts for about one-third of the world's oil production, decided to leave production levels unchanged at today's meeting in Vienna on Thursday, 28 May, 2009.

Also at the Nymex on Friday, July reformulated gasoline fell 0.75 cent, or 0.4%, to $1.9546 a gallon on the Nymex, and July heating oil lost 1.39 cents, or 0.8%, to $1.7701 a gallon.

July natural-gas futures gained 11.8 cents, or 3.1%, to $3.868 per million British thermal units.

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