Prices drop on demand concerns
Crude oil pared early gains and ended lower at Nymex on
Tuesday, 11 May 2010. Long-term implications of the European Union's
rescue package and its impact on the currencies, specially on the euro,
bothered investors and raised question about global demand for oil in
coming months. Agencies increasing their forecast for global oil demand
perhaps restricted crude's losses.
On Tuesday, crude-oil futures for light sweet crude for June
delivery closed at $76.37/barrel (lower by $0.43 or 0.6%). Prices hit a
high of $77 during intra day trading. 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 higher by 1.7%.
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 144%
from a December 2008 nadir. That day prices settled at $33.87 a barrel
following an intraday low of $32.40.
A decision by the European Union and International Monetary
Fund leaders to pledge financial support to the eurozone brought about
a wave of buying and short covering that caused the stock markets
across globe to surge in its best single-session percentage gain in
more than a year yesterday. As per plan, countries in the eurozone that
face financial uncertainty will be eligible to receive some 500 billion
euros from the EU and another 250 billion euros from the IMF. In
addition to those measures, the European Central Bank will buy eurozone
bonds from the secondary market and the Federal Reserve has reactivated
swap lines with foreign institutions. At least for the time being,
those efforts have eased contagion concerns that have surrounded Greece
for weeks.
But traders mulled over the fact today that in the long term
how much financial aid will be pledged for eurozone countries that face
tenuous fiscal conditions and also the issue of how those funds will be
allocated efficiently and whether recipients can remedy their
underlying problems. The long term implication of this on the euro also
bothered investors.
In the currency market today, the euro dropped 0.9% against
the dollar. The dollar index, which measures the strength of the dollar
against a basket of six currencies, rose by 0.4% today. The euro has
slipped 11% against the dollar this year.
Also on Tuesday, the U.S. Energy Information Agency raised
its outlook for global oil demand to 1.6 million barrels per day in
2010, slightly higher than the 1.5 million barrels-a-day projection
made last month. The EIA will release its more closely watched data on
inventories at 10:30 a.m. on Wednesday.
Separately, The Organization of the Petroleum Exporting
Countries also said on Tuesday it was raising its estimate for global
oil demand for 2010. OPEC expects global oil demand to grow by 950,000
barrels a day to 85.38 million barrels a day. It previously expected
growth of 900,000 barrels a day.
Among other energy products on Tuesday, natural gas for June
delivery fell 4 cents, or 1% at $4.13 a million British thermal units
while heating oil for June settled 2 cents higher, up 0.9%, at $2.14 a
gallon.
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 higher by Rs 12
(0.34%) at Rs 3,460/barrel. Natural gas for May delivery closed at Rs
187.4, lower by Rs 1.8 (0.95%).
