Crude pares earlier gains

Prices drop despite crude stockpiles dropping more than expected



Crude oil prices pared earlier gains and ended lower on Wednesday, 14 July 2010 at Nymex. Prices dropped due to Federal Open Market Committee's latest take on the US economy. Earlier in the day, prices rose as energy department reported more than expected drop in crude inventories for last week.

On Wednesday, crude oil futures for light sweet crude for August delivery closed at $77.04/barrel (lower by $0.14 or 0.1%). Last week, prices gained 5.5%.

For the month of June, oil prices shed 2.7%. Crude ended second quarter of CY 2010 lower by 9.3%. For the first quarter of this year, crude rose by 5.5%. Year to date, crude is higher by 6.5%.

In the latest FOMC meeting, Fed indicated that real US GDP for 2010 is now expected to range from 3.0% to 3.5%, which is down from the previous range of 3.2% to 3.7%, while the projection for 2011 GDP ranges from 3.5% to 4.2% after it had previously ranged from 3.4% to 4.5%. As for unemployment, the 2010 projection rate ranges from 9.2% to 9.5% after it had ranged from 9.1% to 9.5%. The expected unemployment rate for 2011 ranges from 8.3% to 8.7% after it had ranged from 8.0% to 8.5% before. FOMC members agreed that it would be appropriate to keep the target federal funds rate at a range of 0.00% to 0.25%. Crude pared its earlier gains following these comments.

In the latest weekly inventory report, the EIA reported on Wednesday a decline of 5.1 million barrels in crude inventories in the week ended 9 July against an expected drop of 2.6 million barrels. The EIA also reported an increase of 1.6 million barrels for gasoline supplies and a rise of 2.9 million barrels for inventories of distillates, which include heating oil and diesel. Market had projected increases of 950,000 barrels in gasoline supplies and 800,000 barrels in distillate supplies.

On Wednesday, US stocks ended almost flat despite a better than expected earning report from Intel. The same was offset by drop in retail sales in June. The Commerce Department in US reported today that sales at US retailers dropped 0.5% in June.

In the currency market on Wednesday, the dollar index, which measures the strength of the dollar against a basket of six other currencies fell by 0.3%.

On Tuesday, the IEA said that global oil demand will climb up by 1.6% next year thereby putting total demand of oil at 87.8 million barrels a day.

On Wednesday, reformulated gasoline for August delivery retreated 2 cents, or 0.8%, to settle at $2.07 a gallon. August heating lost a penny, or 0.6%, to $2.04 a gallon.

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 July delivery closed higher by Rs 38 (0.76%) at Rs 3,624/barrel. Natural gas for July delivery closed at Rs 203.3, lower by Rs 1.8 (0.036%).