Crude prices at two week high

Prices rise after another spate of interest rate cut by Federal Reserve

Crude prices ended higher for the fifth consecutive day today, Wednesday, 30 January, 2008. Another spate of interest rate cut by Federal Reserve pushed crude prices to two week high. A lower interest rate has chances of helping the US economy warding off recession and thus boosts energy demand.

Crude-oil futures for light sweet crude for February delivery today closed at $92.33/barrel (higher by $0.69/barrel or 0.8%) on the New York Mercantile Exchange. Prices are 62% higher than a year ago. The contract traded between the range of $92.71 and $91.05.

The Federal Reserve lowered interest rates 0.5% point to 3% today. This was after the 75 bps rate cut to 3.5% that Fed did last week. The interest rate cuts are to avoid the US economy from plunging into recession.

In the currency markets today, the dollar weakened against most of its major counterparts after the Fed rate cut. The dollar index, which tracks the performance of the greenback against six other major currencies, declined 0.6% at 75.125.

EIA also reported the weekly inventory report today. U.S. crude inventories rose for a third week, up 3.6 million barrels to 293 million barrels in the week ended 25 January. Crude imports averaged about 10.1 million barrels per day last week, down 100,000 barrels per day from the previous week.

EIA also reported that U.S. gasoline supplies rose by 3.6 million barrels to 223.9 million in the week under review, while distillate supplies, which include heating oil and diesel, fell by 1.5 million barrels to 127 million. U.S. refineries operated at 85% of their operable capacity, down from the previous week's 86.5%.

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

Natural gas, gasoline and heating oil – all rise

Brent crude oil for March settlement today rose $0.53 (0.6%) to $92.53 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 in New York rose on expectations that an interest-rate reduction by the Federal Reserve would boost the U.S. economy and lift demand for energy. Gas for March delivery rose 10.2 cents (1.3%) to settle at $8.045 per million British thermal units.

Against this backdrop, March reformulated gasoline rose 0.55 cents to $2.377 a gallon and March heating oil gained 1.12 cents to $2.544 a gallon.

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. The cartel is expected to increase production.

At the MCX, crude oil for February delivery closed at Rs 3,608/barrel, higher by Rs 33 (0.92%) against previous day's close. Natural gas for January delivery closed at Rs 315.4/mmtbu, higher by Rs 5.1/mmtbu (1.6%).

Tomorrow, EIA will report the inventory status of natural gas.