Crude back at $78

Prices drop substantially despite upward revision for global oil demand

Crude oil prices ended substantially lower on Wednesday, 11 August 2010. Prices fell as the dollar strengthened and energy department reported rise in crude product stockpiles for last week.



On Wednesday, crude oil futures for light sweet crude for September delivery closed at $78.02/barrel (lower by $2.23 or 2.28%). Last week, crude ended higher by 2.2%.

For the month of July, crude ended higher by 4.5%. Before this, in 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 2.4%.

In the latest weekly inventory report, EIA reported today a decrease of 3 million barrels of oil in inventories for the week ended 6 August 2010. The EIA also reported an increase of 400,000 barrels for gasoline inventories, and a rise of 3.5 million barrels for stockpiles of distillates, which include heating oil and diesel. Market had expected a drop of 1.5 million for gasoline stocks, and an increase of 1.1 million barrels for distillates.

In the currency market on Wednesday, the dollar index, which weighs the strength of the dollar against a basket of six other currencies, rose by a huge 1.9%.

In the latest FOMC statement issued yesterday, according to the Fed, the economic recovery is likely to be more modest in the near term than had been anticipated. The latest statement also indicated that the target range for the federal funds rate will remain at 0.00% to 0.25% and that low resource utilization and subdued inflation are likely to warrant exceptionally low levels of the fed funds rate for an extended period.

The Commerce Department in US reported on Wednesday, 11 August 2010 that US trade deficit expanded by 18.8% in June, reaching $49.9 billion from $42.0 billion in May. The nation's trade deficit widened sharply in June on record imports of consumer goods. The widening of the deficit was much larger than expected. Market had expected the June deficit to hit $42.5 billion.

In June, imports increased sharply while exports declined. Imports rose 3.0% to $200.3 billion during the month, while exports fell 1.3% to $150.5 billion. Imports of goods alone jumped 3.3% to $167 billion, with the largest increase from imports of consumer and capital goods. Meanwhile, exports of goods alone slipped 2.2% to $105 billion, with exports of farm products at the lowest since September 2009. However, auto exports were the highest since October 2008, while exports of civilian aircraft rose slightly.

The International Energy Agency early Wednesday revised slightly upwards its forecasts for global oil demand for 2010 and 2011, but warned that there is a significant downside risk to these estimates if the economic recovery falters in the second half of the year.

In the latest monthly report yesterday, the Energy Information Administration predicted a slight increase in global oil demand in the next couple of years and raised its forecast for average oil prices for the rest of the year and 2011. As per the agency, it sees oil at an average of $81 a barrel in the fourth quarter of 2010 and $84 a barrel in 2011, slightly above last month's forecast. The agency also predicted that the U.S. is likely alone among developed nations in showing "significant increases in oil consumption" of about 150,000 barrels a day in 2010 and 2011.

The EIA also slightly increased its projected world oil consumption to 1.6 million barrels a day, compared to 1.5 million the month before. OPEC and non-OPEC supply expectations were also raised, however.

On Wednesday, gasoline for September delivery lost 9 cents, or 4.2%, to $2 a gallon. September heating oil fell 5 cents, or 2.4%, to $2.08 a gallon. That was heating oil's lowest close since late July.

Natural gas showed strength, though. The commodity was able to advance 0.7% to $4.33 per MMBtu.

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 August delivery closed lower by Rs 34 (0.91%) at Rs 3,684/barrel. Natural gas for August delivery closed at Rs 202.9, higher by Rs 1.6 (0.8%).