Crude prices plunge

Prices drop drastically as IEA decide to pump oil in market

Decision from International Energy Agency to pump in more oil in the market pushed crude oil prices considerably lower on Thursday, 23 June 2011 at Nymex. Prices also fell following mixed economic data from US and China and strong dollar. IEA came out with this decision as they think that recent troubles in Libya have removed close to 130 million barrels of oil from market by May end.



On Thursday, crude oil futures for light sweet crude for August delivery closed lower by $4.39 (4.6%) at $91.02/barrel. Prices fell to a low of $89.7 during intra day trading. Last week, crude lost 6.2%. That was the heaviest weekly loss in more than four months time.

For the year till date, crude prices have dropped 0.8%. For the first quarter of this year, crude gained 17%.

In the currency market on Thursday, the dollar index, which, measures the strength of the dollar against a basket of six other currencies, rose by almost 0.7%. The dollar remained strong for the entire day.

In order to ease current crude prices, International Energy Agency announced today that its member countries would release a total 60 million barrels of oil, with the United States kicking in 30 million of the barrels. The product will come from the Strategic Petroleum Reserve, which stands at capacity and at its highest level ever holding 727 million barrels. This is the third time in the IEA's history that its members have decided to release stocks.

The Labor Department in US reported on Thursday, 23 June 2011 that initial claims rose by 9,000 to a seasonally adjusted 429,000 in the week ended 18 June 2011. Initial claims from two weeks ago were revised up to 420,000 from an originally reported 414,000. Market had expected initial claims to fall to 415,000 for the latest week. Meanwhile, the average of new claims over the past four weeks was flat at 426,250. The monthly average is considered a more accurate measure of employment trends.

Among other economic data, the Commerce Department reported that sales of new U.S. homes slipped 2.1% in May after a steep downturn in activity in the Northeast. Sales of new homes fell to a seasonally-adjusted annual rate of 319,000 in May against an expected figure of 305,000.

HSBC's preliminary China manufacturing Purchasing Managers' Index for June came at 50.1, down from a PMI of 51.6 in May, and barely above the 50 level that separates contraction from expansion. This also fuelled demand concerns for crude thereby pushing prices lower.

In the latest weekly inventory report, the EIA reported yesterday a decline of 1.7 million barrels in U.S. crude supplies for the week ended 17 June 2011. Market was looking for a 2 million-barrel decrease. Motor gasoline supplies fell 500,000 barrels while distillate stocks added 1.2 million barrels in the latest week. Market had expected a rise of 1 million for gasoline and an increase of 800,000 barrels for distillates.

The Fed, in its latest statement, downgraded its assessment of the U.S. economy's performance, but gave no indication policymakers intend to take new steps to boost growth and jobs. Given low resource utilization rates and a subdued outlook for inflation, the FOMC left the federal funds target rate at 0.00% to 0.25%, and is expected to keep the target at exceptionally low levels for an extended period, as it has stated so many times before. It also kept its plans unchanged regarding the end of the second round of quantitative easing.

The Federal Reserve cut its economic growth forecast for the second time this year, reducing its estimate of 2011 gross domestic product growth to a range of 2.7% to 2.9%, down from 3.1% to 3.3% in April and 3.4% to 3.9% in January. It's also cut its 2012 forecast from this lower base, to a level showing 3.3% to 3.7% growth from the 3.5% to 4.2% growth that the Fed forecast in April.

Among other energy products on Thursday, July heating oil futures fell 17 cents, or 5.9%, at $2.78 a gallon. July gasoline futures lost 14 cents, or 4.6%, at $2.84 a gallon.

Natural gas for July delivery declined 12 cents, or 2.9%, to settle at $4.19 per million British thermal units. The U.S. Energy Information Administration reported an increase of 98 billion cubic feet of the product for the week ending 17 June against an expected increase between 87 and 91 Bcf.

At the MCX, crude oil for June delivery closed lower by Rs 142 (3.3%) at Rs 4,141/barrel. Natural gas for June delivery closed at Rs 188.9, lower by Rs 5.4 (2.8%).