Crude Oil To Come Under Selling Pressure

Cut in interest rate by Federal Reserve took oil prices back above $90 today and crude closed more than $2 higher for the day. Lower borrowing costs is expected to spur fuel demand and investment in commodities.

For the day ending Tuesday, 11 December 2007, crude-oil futures for light sweet crude for January delivery closed at $90.02/barrel (higher by $2.16/barrel or 2.5%) on the New York Mercantile Exchange. The contract touched $90.55 before the Fed announced its decision at 2:15 p.m. Prices reached a high of $99.2 on 21 November. Prices are up 47% from a year ago.

The central bank lowered the federal funds rate by a quarter-point to 4.25%. The Fed also lowered its discount rate, the interest it charges on direct loans it makes to banks, by a quarter-point to 4.75%.

In the currency market today, the dollar slipped against the yen but gained against most other major rivals. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, rose 0.2% at 76.230.

Brent crude oil for January settlement rose $1.95 (2.2%) to $89.99 on the London-based ICE Futures Europe exchange.

In other energy markets, Natural gas futures in New York rose on speculation higher demand spurred by colder weather pulled above-average quantities of gas from stockpiles. Natural gas for January delivery rose 5.3 cents (0.8%) to settle at $7.085 per million British thermal units. Futures have gained 12% this year till date.

Meanwhile, according to the latest updates from the Energy Information Agency of the US, global oil markets will likely remain tight through 2008 and monthly average oil prices are expected to near $85 per barrel over the next year. World oil consumption in 2008 is projected to rise by 1.4 million barrels.

Outlook:
A downturn can be expected in the oil futures in today’s session after yesterday’s rally. $90 has looked a difficult level for the crude oil futures to hold on and considering the weather updates, the winter in the US is still not showing the signs of intensifying to an extent where a scarcity premium can not only push but also hold oil above $90 once again. We may expect a slide of about one dollar and half in the intraday moves on NYMEX today.