Crude drops below $80

Prices end lower due to host of factors

Crude oil ended substantially lower at Nymex on Wednesday, 05 May 2010. Prices fell in tandem with US equities. Prices also fell due to a strong dollar and as energy department reported a more than expected build up in crude inventories for last week.

On Wednesday, crude-oil futures for light sweet crude for June delivery closed at $79.97/barrel (lower by $2.77 or 3.4%). Yesterday crude registered the biggest drop in three months – both in dollar and percentage terms. Last week, crude ended higher by 1.2%. For the month of April, crude rose 2.8%. For the first quarter of this year, crude rose by 5.5%. Year to date, crude is higher by 1%.

Prices are very much lower as compared to 3 July, 2008 settlement of $145.29 a barrel and an intraday high of $147.27 on 11 July, 2008, an all-time high. However, oil has also gained nearly 150% from a December 2008 nadir. That day prices settled at $33.87 a barrel following an intraday low of $32.40.

A bailout package worth some $146 billion for Greece was announced over the weekend, but it was not enough to restore investors' confidence about the euro-zone countries and the euro and investors again sought gold as a hedge against currency fears. But Greece was rocked with a general strike today and Athens was rocked with riots which brought in more tension to the already troubled region.

In the currency market on Wednesday, the dollar index, which measures the strength of the dollar against basket of six other currencies rose by 0.9%. But the euro modestly moderated its losses against the dollar. The dollar is up some 7.6% for the year.

In the weekly inventory report, EIA said crude-oil inventories rose 2.8 million barrels in the week ended 30 April. It included a 1.7 million increase in inventories in Cushing, Okla., the delivery point for Nymex oil. Market had expected crude stocks to increase by 1.54 million barrels. The report also showed that gasoline stockpiles rose by 1.2 million when the expectation was of a modest rise of 200,000 barrels. Refineries operated at 89.6% of their operable capacity.

Among other energy products on Wednesday, gasoline for June delivery declined 10 cents, or 4.4%, to $2.22 a gallon, reverting to prices last seen in late March. Natural gas for June delivery retreated 2 cents, or 0.6%, to $3.99 per million British thermal units.

Crude ended FY 2009 higher by 78%, the highest yearly gain since 1999. It reached a high of $82 earlier in October 2009 and hit a low of $33.98 on 12 February 2009. Crude prices had ended FY 2008 lower by 54%, the largest yearly loss since trading began at Nymex.

At the MCX, crude oil for May delivery closed lower by Rs 112 (3%) at Rs 3,624/barrel. Natural gas for May delivery closed at Rs 179.5, lower by Rs 1.4 (0.8%).