Crude pares early losses

Prices end higher as traders anticipate a drop in inventory

Crude prices erased earlier losses and ended higher for the day on Tuesday, 22 December 2009. Prices rose despite the firm dollar. The rise in price was mainly because traders anticipate a drop in crude inventories in tomorrow's weekly inventory data.

On Tuesday, crude-oil futures for light sweet crude for February delivery closed at $74.4/barrel (higher by $0.68 or 0.9%). Earlier in the day, it was trading as low as $72.72.

Last week, crude ended higher by almost 5%. Crude ended month of November, higher by 0.4%. It reached a high of $82 earlier in October this year but since then it has been dropping most of the days.

Oil prices had reached a high of $147 on 11 July, 2008 but have dropped almost 49% since then.

Market is expecting a drop of 2 million and 1.3 million of crude and gasoline inventories in tomorrow's report.

In the latest meet at Angola, members of the OPEC oil cartel decided to make no changes to current production quotas. The decision was in line with market expectations. In keeping its quotas unchanged, OPEC cited "shrinking industrial production, low private consumption and high unemployment" in the global economy.

OPEC said in its monthly report that the 11 members bound by production quotas produced 26.6 million barrels a day of crude in November, up for an eighth straight month. OPEC had agreed to set their quotas at 24.845 million barrels a day starting from the beginning of this year.

Last week, in the latest report, OPEC, revised higher its forecast for world oil demand next year by 70,000 barrels a day, to 85.13 million barrels, citing demand from developing countries such as China and India. However, the cartel said the pace of recovery in developed countries, especially in the U.S., remained at risk and could dampen demand.

The cartel also said that the supply of oil from non-OPEC nations will likely expand by 500,000 barrels a day this year, slightly higher than last month's forecast. In November, OPEC crude production averaged 29.1 million barrels a day.

In the currency market on Monday, the greenback started the day in the mixed mode. The dollar index, which weighs the strength of dollar against the basket of six other currencies, then rose by almost 0.2%.

The National Association of Realtors in US reported on Tuesday, 22 December 2009 that resale of U.S. homes increased by 7.4% to 6.54 million in November 2009.

The sales pace was the highest since February 2007 and was the third-straight large increase in existing home sales. Sales are up 28% since August. The report also stated that sales are up a record 44.1% in the past year, reflecting a recovery in the housing market after the sharpest downturn in decades.

Among other energy products on Tuesday, January gasoline ended up 1.97 cents, or 1.1%, at $1.8888 a gallon. January heating oil gained slightly to $1.9486 a gallon

Also on Tuesday, January natural gas rose 4.6 cents, or 0.8%, to $5.715 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 January delivery closed lower by Rs 35 (0.99%) at Rs 3,469/barrel. Natural gas for December delivery closed lower by Rs 6.9 (2.5%) at Rs 265.4/mmbtu.