Crude drops despite fed cut

Prices recover from intra day lows but ends lower as traders fail to overcome recession fears

Crude prices once again fell today, Tuesday, 22 January, 2008. Price recovered from intra day lows but traders could not get outs of the recessionary fears despite Federal Reserve slicing benchmark interest rates by 75 basis points to 3.5%. Global stocks markets worldwide plunged in the last couple of days on fears that US economy would be hitting a recession soon. There was no floor trading in New York yesterday because of the Martin Luther King Day holiday.

Crude-oil futures for light sweet crude for February delivery today closed at $89.85/barrel (lower by $0.72/barrel or 0.8%) on the New York Mercantile Exchange. Futures touched $85.42 before the Fed announcement. Prices are 76% higher than a year ago.

Crude had ended FY 2007 substantially higher by $35 or 57%. It was crude’s biggest yearly gain in five years.

The Federal Reserve today slashed its benchmark interest rate 0.75% to 3.5% after global equity markets tumbled on concern the slumping U.S. economy will drag down the growth rates of other nations.

Brent crude oil for March settlement today rose $0.94 (1.1%) to $88.45 on the London-based ICE Futures Europe exchange. The London benchmark rose 54% in FY 2007, the most since 1999 when prices more than doubled.

Natural gas and crude oil drop by 1.4% at MCX

Natural gas fell for a fifth day amid speculation an emergency interest rate cut by the Federal Reserve won't be enough to prevent the U.S. economy from sliding into recession, paring demand for gas. Gas for February delivery fell 32.3 cents (4%) to settle at $7.67 per million British thermal units.

Against this backdrop, February reformulated gasoline dropped 2.28 cents to $2.2806 a gallon and February heating oil fell 3.48 cents to $2.4726 a gallon.

In the currency markets, the dollar fell against its major counterparts today pressured by expectations of further rate cuts from the Fed. The dollar index, which tracks the performance of the greenback against other major currencies, was down about 0.7% at 76.311, after earlier dropping as low as 76.251.

Members of the OPEC left production targets unchanged at the 5 December meeting in Abu Dhabi. The group, which produces 40% of the world's oil, will review output at a 1 February, 2008 meeting in Vienna.

At the MCX, crude oil for February delivery closed at Rs 3,489/barrel, lower by Rs 50 (1.4%) against previous day’s close. Natural gas for January delivery closed at Rs 308.2/mmtbu, lower by Rs 4.3/mmtbu (1.3%).