Crude drops from three-year high levels

Prices settle down as dollar spikes up

Oil prices dropped from their three year high levels on Tuesday, 08 March 2011. Prices dropped as the dollar strengthened against its counterparts and traders shifted their attention to latest developments in Libya.



On Tuesday, crude oil futures for light sweet crude for April delivery closed lower by $0.42 (0.4%) at $105.02/barrel. Prices touched a low of $103.33 during intra day trading. Last week, prices closed higher by 6.7%. This was the highest close for crude since September 2008.

Crude prices gained 5.2% in February 2011 after gaining 0.9% in January. Prices have gained 14.6% till date this year.

Latest reports indicated that Libyan leader Moammar Gadhafi may be discussing a deal with opposition members to step down.

In the currency market on Tuesday, the dollar index, which weighs the strength of the dollar against a basket of six other currencies, rose by 0.3%.

In the latest monthly report, The Energy Information Administration raised its average estimate for crude oil bought by refiners to $105 a barrel in 2011, up $14 from its outlook last month. It also raised its forecast for the light, sweet grade trading on the Nymex to an average $102 this year, up $9, as turmoil continued to roil Libya and protests erupted in other oil-producing countries.

The EIA also cut expectations for production outside OPEC to 170,000 barrels a day this year from a February estimate of 310,000 barrels a day. In addition, the agency pared its estimate of OPEC surplus capacity to 4.1 million barrels a day in 2011, from an estimate of 4.4 million barrels a day in 2010.

The EIA is expected to release its weekly supply report tomorrow, Wednesday at 10:30 a.m. Eastern Time. Traders are expecting crude inventories to show a rise of 600,000 barrels while gasoline and heating oil inventories are expected to drop by 1.5 million barrels and 1.2 million barrels respectively.

Among other energy products on Tuesday, April gasoline lost 6 cents, or 1.9%, to finish at $2.95 a gallon. April heating oil fell 5 cents, or 1.8%, to settle at $3.01 a gallon.

April natural gas traded briefly on the black but ended lower. The contract settled 6 cents lower, or 1.6%, to $3.86 per million British thermal units.

At the MCX, crude oil for March closed lower by Rs 44 (0.92%) at Rs 4,725/barrel. Natural gas for March delivery closed higher by Rs 3.3 (1.9%) at Rs 178.6.