Crude continues to drop

Prices end lower in tandem with US equities

Crude oil ended substantially lower at Nymex on Thursday, 06 May 2010. Prices fell in tandem with US equities as European sovereign debt concerns failed to abate. Prices also fell due to a strong dollar and as energy department yesterday reported a more than expected build up in crude inventories for last week.

On Thursday, crude-oil futures for light sweet crude for June delivery closed at $77.11/barrel (lower by $2.86 or 3.6%). Prices have shed nearly 7% in the past three sessions. Last week, crude ended higher by 1.2%. For the month of April, crude rose 2.8%. For the first quarter of this year, crude rose by 5.5%. Year to date, crude is lower by 2.6%.

Prices are very much lower as compared to 3 July, 2008 settlement of $145.29 a barrel and an intraday high of $147.27 on 11 July, 2008, an all-time high. However, oil has also gained nearly 146% from a December 2008 nadir. That day prices settled at $33.87 a barrel following an intraday low of $32.40.

A bailout package worth some $146 billion for Greece was announced over the weekend, but it was not enough to restore investors' confidence about the euro-zone countries and the euro and investors again sought gold as a hedge against currency fears. In the midst of financial turmoil and on the eve of key votes in Europe on Greece's bailout package, US stocks almost collapsed today.

In the currency market on Thursday, the dollar index, which weighs the strength of the dollar against a basket of six currencies, rose by 0.5%. Most of the greenback's gain came against the euro, which remained weak in the wake of the European Central Bank's decision to keep its target interest rate unchanged at 1%, as expected. News that Greece passed planned austerity measures in a nonbinding preliminary vote failed to help the euro, too.

Among economic reports for the day, The Labor Department in US reported on Thursday, 06 May 2010 that the number of first-time applications for state unemployment benefits fell by 7,000 last week to a seasonally adjusted 444,000. Initial claims fell for the third straight week after filings bumped higher in early April due to administrative backlogs and seasonal distortions around the Easter holiday and the end of the quarter.

Separately, the Labor Department in US reported on Thursday, 06 May 2010 that the productivity of U.S. nonfarm businesses slowed in the first quarter from 6.3% to 3.6% annual rate. The 3.6% rise in productivity for the first quarter was better than the 3.1%.

In the weekly inventory report, EIA reported yesterday that crude-oil inventories rose 2.8 million barrels in the week ended 30 April. It included a 1.7 million increase in inventories in Cushing, Okla., the delivery point for Nymex oil. Market had expected crude stocks to increase by 1.54 million barrels. The report also showed that gasoline stockpiles rose by 1.2 million when the expectation was of a modest rise of 200,000 barrels. Refineries operated at 89.6% of their operable capacity.

Among other energy products on Thursday, gasoline for June delivery retreated 6 cents, or 2.9%, to $2.15 a gallon. Natural gas ended lower on Thursday following a report on natural-gas storages. The Energy Information Administration reported an increase of 83 billion cubic feet in the week ended 30 April. Natural-gas futures for June delivery retreated 6 cents, or 1.5%, to $3.92 per million British thermal units.

Crude ended FY 2009 higher by 78%, the highest yearly gain since 1999. It reached a high of $82 earlier in October 2009 and hit a low of $33.98 on 12 February 2009. Crude prices had ended FY 2008 lower by 54%, the largest yearly loss since trading began at Nymex.

At the MCX, crude oil for May delivery closed lower by Rs 81 (2.2%) at Rs 3,543/barrel. Natural gas for May delivery closed at Rs 178.1, lower by Rs 1.4 (0.8%).