Retreating crude leaves punters bleeding

MUMBAI: Indian investors, who had bet big on crude when prices hit $78 a barrel in July 2006, are desperate to wriggle out of their positions with the prices dropping below $60. Taking the parity price of the Nymex contract from July 1 to November 23, an investor who was long on crude would have lost close to Rs 75,000 on every contract he had put his money in over the period.

Sample this: On July 3, the Indian crude price was Rs 3,408 per barrel ($74, with $1=Rs 46.75), and on November 23, the price was at Rs 2,670 ($59.75, with $1=Rs 44.7). If an investor had simply rolled over his contracts every month since then, he would have incurred a loss of Rs 73,800 per contract (100 barrels).

According to Emkay Commotrade head (commodities) Atul Shah, “Traders were initially bullish on crude due to a number of reasons, but it soon crashed as these expectations failed to materialise.”
Firstly, the hurricane season between June and November in the US went off smoothly without a single oil rig being affected. Besides, even though the Iran nuclear issue persists, the US didn’t take an extreme stance on it.

The winter weather is also reported to be moderate. A good winter expects to see a sharp rise in demand for crude, which usually pushes the price up. To top it all, crude inventories in the US have risen by 5.1 million barrels, and gasoline stocks rose 1.4 million barrels. This caused a huge drop in price.

The Organisation of Petroleum Exporting Countries (Opec), which already cut the output by 1.2 million barrels per day from November 1, announced that it would consider further cuts in December if the price continued to decline.

Some market watchers, however, are hopeful that crude will stabilise and regain its upward movement as the temperatures are expected to fall in US in early December. “The temperatures are expected to fall in the North East of US, in and around New York, which will raise the demand for heating oil. This should eventually lead to a rise in the price,” an industry observer said. The North East of US accounts for 80% of heating oil demand.