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Wednesday, October 20, 2010

Crude crushed on China effect

Prices end down more than 4% on ideas that a surprise rate increase in China would dent demand for commodities 

Crude Oil was crushed in the last session on ideas that a surprise rate increase in China would dent demand for commodities and the US dollar rallied sharply. The NYMEX Oil futures slumped more than 4% yesterday- witnessing their biggest one-day drop since February as all commodities slumped and the DOW felt a ripple effect from the Chinese monetary tightening getting a dose of its own medicine. Dow slumped sharply as buyers retreated in reaction to China's unexpected rate hike, its first in nearly three years.

The upbeat undertone on the economic front was clouded by the Chinese moves as a rise in the housing starts failed to lend support. Stocks sank by substantial margins with the Dow shedding 165.07 points or 1.5% to close at 10,978.62. 

The crude markets had started mixed but then witnessed a sell off as China hiked its one-year benchmark deposit rate to 2.50% from 2.25 %and the one-year lending rate to 5.56% from 5.31 percent. The move marked the first rate change for the world's second largest economy since December of 2007.

Crude dipped following this as all the commodities including Gold fell. The prices broke under the $82 per barrel mark in Europe and ended under $80 per barrel in New York. Crude oil for November delivery closed down by $3.59 to $79.49 a barrel on the New York Mercantile Exchange. It was also oil's first time settling under $80 a barrel in October and at its lowest price since Sept. 29.

Data out earlier in the week showed that the US industrial production slipped in September following slide in manufacturing activity, according to figures released by the Federal Reserve. The output of the industrial sector of the economy decreased 0.2% in September after having increased 0.2% in August. This represents the first monthly decline in industrial production since mid-2009.

The Fed's index for manufacturing decelerated sharply in the third quarter. After having jumped at an annual rate of 9.1% in the second quarter, factory output gained 3.6% in the third quarter.

MCX Crude oil futures closed down Rs 75 at Rs 3655 per barrel for the November futures, which turned the benchmark amid hectic activity ahead of the expiry of the near month series.
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