Crude on the rise

Prices shoot up as inventories drop more than expected

Upbeat economic reports, weak dollar and more than expected drop in crude inventories sent crude prices at Nymex on Wednesday, 16 September, 2009.

On Wednesday, crude-oil futures for light sweet crude for October delivery closed at $72.51/barrel (higher by $1.58 or 2.2%). During intra day trading, it rose to a high of $72.56. Last week, crude ended higher by 1.9%.

For the month of August, 2009, crude ended higher by a marginal 0.7%. For the second quarter, crude ended higher by 40%. Crude prices had rallied 11.3% in the first quarter of 2009.

Oil prices had reached a high of $147 on 11 July, 2008 but have dropped almost 53% since then. Year to date, in 2009, crude prices are higher by 52%.

In the latest weekly inventory report, EIA reported a bigger-than-expected drop of 4.7 million barrels in U.S. stockpiles of crude oil in the week ended 11 September, 2009.

The dollar, which has served as a safe-haven asset over the past year because of its low yield, fell back to its lows of the year on Wednesday, after more upbeat U.S. economic reports. The dollar index, which measures the strength of dollar against a basket of other currencies, fell to one year low of 76.15.

The Federal Reserve reported on Wednesday, 16 September, 2009 that USA's factories showed renewed strength in August and the gain in July was much stronger than first thought. U.S. industrial production rose 0.8% in August. Output rose a revised 1% in July, double the initial estimate of a 0.5% gain. The gain in July is the largest since October 2008.

In a separate report, The Labor Department reported on Thursday, 16 September, 2009 that U.S. consumer prices increased a seasonally adjusted 0.4% in August, pushed higher by a 9.1% increase in gasoline prices. In the past 12 months, the consumer price index has fallen 1.5%, largely because energy prices have dropped 23% over that period.

Natural gas also continued its recent surge, with the October contract gaining 44 cents, or 13%, to finish at $3.76 per million British thermal units.

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

At the MCX, crude oil for September delivery closed higher by Rs 36 (1.04%) at Rs 3,469/barrel. Natural gas for September delivery closed higher by Rs 4.8 (2.9%) at Rs 172.1/mmbtu.