Crude continues to sink

Prices drop to five-week low

Crude oil prices dropped once again and ended at its lowest level in five weeks on Monday, 16 August 2010. Prices dropped due to weak economic data that hinted towards the pace of global economic recovery.



On Monday, crude oil futures for light sweet crude for September delivery closed at $75.25/barrel (lower by $0.15 or 0.2%). Last week, crude ended lower by 6.7%.

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 lower by 1.2%.

In the currency market on Monday, the dollar index, which weighs the strength of the dollar against a basket of six other currencies, fell by 0.6%.

Among economic data expected for the day, it showed that the National Association of Home Builders/Wells Fargo Housing Market Index fell to 13, its worst reading since March 2009. Market had anticipated a rise to 15 from 14 previously. In addition, Federal Reserve Bank of New York data showed a smaller-than-expected rebound in its Empire State manufacturing index, which rose to 7.1 in August from 5.1 in July.

Investors also digested data reported overnight that Japan's gross domestic product rose just 0.4% in the second quarter, much worse than the 2.3% market had expected.

Last Friday, the Organization of the Petroleum Exporting Countries revised higher its forecast for world oil demand growth in 2010 by 100,000 barrels a day to 1 million barrels a day. The growth in demand is expected to be driven by China, India, the Middle East and Latin America. The estimate for 2011 oil demand was unchanged from OPEC's previous report.

The International Energy Agency last 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. Forecast global oil demand for 2010 and 2011 was revised up by 80,000 barrels a day and 50,000 barrels a day respectively. Oil demand is thus expected to average 86.6 million barrels a day in 2010 and 87.9 million barrels a day in 2011.

On Monday, gasoline futures closed at an eleven-week low, with the September contract settling down 2 cents, or 0.8%, to $1.92 a gallon. Natural gas also saw red Monday to the tune of a 2.3% pullback and an 11-week low.

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 12 (0.34%) at Rs 3,525/barrel. Natural gas for August delivery closed at Rs 197.7, lower by Rs 4.7 (2.3%).