Crude stays steady

Prices continue to slip on recession concerns

Oil prices ended substantially lower once again on Wednesday, 18 February, 2009. Prices slumped due to the ongoing recession concerns gripping the overall US economy and also many parts of the world. Prices also fell after traders anticipated that tomorrow's weekly inventory report by the energy department will show buildup in crude inventories for the nineteenth time in twenty one weeks. The report is coming a day late due to the Presidents Day holiday on Monday.

On Wednesday, crude-oil futures for light sweet crude for March delivery closed at $34.62/barrel (lower by $0.31 or 0.9%) on the New York Mercantile Exchange. During the day, it fell to a low of $34.13 and also rose to a high of $36.22. Last week, crude ended lower by 6.6%.

Prices reached a high of $147 on 11 July, 2008 but have dropped almost 77% since then. Year to date, in 2009, crude prices are lower by 22%. On a yearly basis, crude prices are lower by 67%.

Market expects tomorrow's report to show a buildup of crude inventories to the tune of 3 million barrels.

Recently, Paris based, IEA has reported that this year's global oil demand will fall by 1 million barrels a day, or 1.1%, from last year. If realized, it will be the biggest yearly drop since 1982. The IEA cited a worsening economic outlook across all regions as the reason for the weakness in oil demand.

Crude prices had ended FY 2008 lower by 54%, the largest yearly loss since trading began at Nymex.

OPEC has been trying to cut production consistently in order to step up prices from their current low levels. OPEC agreed to reduce production by a record amount of 2.2 million barrels a day, starting from 1 January, 2009 adding to previous cuts of 2 million barrels. Overall, the reduction is equal to about 5% of the world's oil demand.

Against this background, March reformulated gasoline fell 4.2% to $1.0652 a gallon, and March heating oil dropped 3.3% to $1.1469 a gallon.

Natural gas for March delivery fell 5.6% to $4.203 per million British thermal units.

At the MCX, crude oil for February delivery closed at Rs 1,897/barrel, lower by Rs 62 (3.2%) against previous day's close. Natural gas for February delivery closed at Rs 205.7/mmbtu, lower by Rs 5.3/mmbtu (1.5%).