Crude comes spiraling down

Prices tumble as global indices register drastic drop amid global economic growth concerns

Crude prices tumbled on Thursday, 22 September, 2011 at Nymex. Prices fell in tandem with US equities which ended considerably lower and also as strong dollar pressured commodities. Global economic growth concerns led to this fall.

Light and sweet crude for October delivery fell $5.4 (6.2%) to $80.52 a barrel on the New York Mercantile Exchange on Thursday. Prices fell to a low of $79.66 and rose to a high of $85 during intra day trading. Last week, crude gained 0.8%. For the month of August, 2011, crude shed 7.1%.



In the currency market on Thursday, the dollar index, which measures the strength of the dollar against a basket of six other currencies, ended higher by 1.5%.

US stocks slumped once again on Thursday as Wall Street's worry about Europe's debt trouble and the global economy intensified. The negative sentiment taking hold among investors was driven by the bank runs in Europe, and some of the European banks are rumored to be looking in the Middle East for capital.

Disappointing data further undermined sentiment. For China, the latest HSBC Manufacturing PMI slipped from the prior reading. Both Germany and France reported declines in their manufacturing and services PMI, as did the broader eurozone.

Domestic data featured another weekly initial jobless claims tally that exceeded 400,000, as had been expected. However, Leading Indicators for August increased by 0.3%, which exceeds the 0.1% that had been anticipated.

In the weekly inventory report, Energy Information Administration reported yesterday a decline of 7.3 million barrels in the nation's crude supplies for the week ended 16 September 2011. Market had expected a decline between 1 million and 2 million barrels. The government's update on petroleum stockpiles was bullish all around. Gasoline supplies rose by 3.3 million barrels on the week, and inventories of distillates, which include heating oil and diesel, were down 900,000 barrels. Market had expected gasoline to be up 800,000 barrels, and distillates supplies to rise 1.2 million barrels.

The International Monetary Fund downgraded its prospects of the global economy earlier this week. IMF cut U.S. growth forecast to 1.5% this year and 1.8% in 2012. The IMF's 2011 forecast is a full percentage point lower than its expectations three months ago and 0.9% below its prior forecast for 2012.

In a latest report, the EIA said earlier during the week that world energy consumption will grow 53% by 2035, led by demand growth in India and China. In the 2011 International Energy Outlook, the agency predicts that consumption of energy from renewable sources will be the fastest growing energy sector, reaching 15% of the world energy use by 2035 compared to 10% in 2008. But fossil fuels will still be the world's dominant source, accounting for about 78% of the world's energy use in 2035. The EIA said it expects oil prices to remain high, reaching $125 per barrel in 2035, but added that consumption of oil will still grow during that period.

Among other energy products on Thursday, October gasoline retreated 11 cents, or 4%, to $2.56 a gallon. October heating oil declined 9 cents, or 2.9%, to $2.85 a gallon.

Natural gas for October delivery declined 2 cents to trade at $3.71 per million British thermal units on the New York Mercantile Exchange. The Energy Information Administration said natural-gas inventories rose 89 billion cubic feet in the week ended 16 September. Market had expected an increase between 89 and 93 billion cubic feet.

At the MCX, crude oil for October delivery closed lower by $191 (4.5%) at Rs 4,018/barrel. Natural gas for September delivery closed at Rs 184.7, higher by Rs 3.6 (2%).