Crude back in the red

Prices drop as investors mull over economic recovery

Crude oil prices slipped once again on Tuesday, 21 September 2010 at Nymex. Prices dropped as investors failed to understand the pace of US economic recovery following the FOMC meeting details. Prices had registered gains a day before for the first time in five days.



On Tuesday, crude oil futures for light sweet crude for October delivery closed at $73.52/barrel (lower by $1.34 or 1.8%). Last week, crude ended lower by 3.7%.

For the month of August, crude ended lower by 8.9%. Before this, in July, crude ended higher by 4.5%. 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 0.8%.

Oil witnessed its first monthly decline in August since May. The month started well, with prices surpassing $82 a barrel, but soon got derailed as key reports showed the bad times were far from over.

Among economic reports expected for the day, he Commerce Department in US reported on Tuesday, 21 September 2010 that home construction in US increased in August 2010 and applications for building permits also grew. The gains were driven mainly by apartment and condominium construction, not the much larger single-family homes sector.

As per the report, construction of new homes and apartments rose 10.5% in August from a month earlier to a seasonally adjusted annual rate of 598,000. That's the highest level since April. Market had expected housing starts to drop to 535,000 on a seasonally adjusted basis.

Also, latest FOMC statement indicated that the target range for the federal funds rate will be maintained at 0.00% to 0.25% and that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period. The statement also indicated that the Fed is prepared to provide additional accomodation if needed.

Among other energy products on Tuesday, reformulated gasoline for October delivery deepened losses after the Fed, retreating 3 cents to finish at $1.92 a gallon.

Also on Tuesday, natural-gas futures held on to their recovery from Monday's rout, with the October contract rising 10 cents, or 2.5%, to $3.92 per million British thermal units. Natural gas lost 5% on Monday, its biggest one-day drop since late April.

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 October delivery closed lower by Rs 42 (1.2%) at Rs 3,483/barrel. Natural gas for September delivery closed at Rs 181.3, higher by Rs 4.8 (2.7%).