Prices manage to gain as dollar slides lower

Crude prices ended modestly higher today, Tuesday, 25 March, 2008 as the dollar slumped due to some discouraging economic data. Traders also speculated that tomorrow's inventory report by Energy Department will show rise in gasoline and crude inventories. Since the past few days, prices had been continuing to slip ever since Federal Reserve decided to cut overnight lending rates by 75 bps to bring it down to 2.25% to strengthen the economy last week.

Crude-oil futures for light sweet crude for May delivery closed at $101.22/barrel (higher by $0.36/barrel or 0.4%) on the New York Mercantile Exchange. Prices earlier dropped to $99.3. Crude prices are 65% higher on a yearly basis. The crude ended last week lower by more than $7 (6.8%).

In the currency market today, the euro traded as high as $1.5619 after a report showed consumer confidence in the U.S. fell more than forecast this month, fueling speculation that the Federal Reserve will have to cut its target bank-lending rate by as much as 50 basis points next month to revive economic growth. The dollar index, which tracks the value of the greenback against a basket of other currencies, fell 0.8% to 72.27.

A stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies. On the other hand, crude prices, denominated in dollars, tend to rise when the greenback falls, as a weaker U.S. currency makes crude less expensive to buyers holding other currencies. It also lowers oil producers' dollar revenue and forces them to raise prices.

Traders speculated that tomorrow's inventory report will show an increase of 1.5 million barrels of crude product inventories for last week.

Brent crude oil for May settlement today rose $0.74 (0.7%) to $100.60 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 gains 26% for the year

Natural gas advanced on speculation reduced output from nuclear, hydro and coal power plants will increase its use for power generation. Natural gas for April delivery rose 9 cents (1%) to settle at $9.419 per million British thermal units.

Against this backdrop, May reformulated gasoline rose 3.84 cents at $2.671 a gallon, May heating oil lost 3.4 cents to $2.8401 a gallon.

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

OPEC left production targets unchanged on its 5 March meeting at Vienna, giving 12 of its 13 members a combined quota of 29.67 million barrels a day. Also over the weekend, it was reported that OPEC President Chakib Khelil said oil prices would range between $80 and $110 a barrel for the rest of 2008.

At the MCX, crude oil for May delivery closed at Rs 4,016/barrel, lower by Rs 65 (1.6%) against previous day's close. Natural gas for April delivery closed at Rs 378.9/mmtbu, lower by Rs 0.2/mmtbu (0.05%).