Crude Oil

Oil prices, which had started recovering after dropping to a low of $30/barrel, are slipping again. Crude oil is trading below $60/barrel after touching a high of $70 in the recent past. Oil prices seem to have dropped because a rise of the dollar against the euro has limited investors’ need to use commodities as an inflation hedge. The US currency rose to its strongest against the euro since May 21 this year. Another reason for the decline in oil prices was the release of numbers indicating a contraction in manufacturing in the New York region for the 14th month. The poor performance of the equity markets globally was another factor. Data released by the US Government suggests that the fall in the crude prices was triggered by a more than expected increase in distillate and gasoline inventories. Although crude oil inventories have declined, inventories of heating oil and diesel fuel have hit a 25-year high. There was further pressure on prices after news from OPEC suggested that consumption would not reach 31 million barrels per day until 2013 – that was the average of 2008 before the economic crisis led to a cut in oil usage. OPEC expects global demand to touch 84.2 million barrels per day against 85.6 million barrels last year. OPEC is not alone in its bearishness about demand for crude oil in 2009 – the International Energy Agency (IEA) has also predicted a 2.9% decline in 2009 demand. The IEA expects demand for oil to rise as developing economies recover, but it also maintains that demand is unlikely to rise until 2010.

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