Commodity Corner: Oil Overcomes Demand Obstacles
Despite demand concerns arising from around the globe, crude oil futures managed to settle higher Thursday.
Crude oil for June delivery gained 76 cents for the day to settle at $98.97 a barrel after plunging to an intraday low of $95.25. The steep price decline followed indications that oil demand may be decelerating in the world's major oil-consuming countries.
The Paris-based International Energy Agency (IEA) on Thursday cut its 2011 global oil product demand growth projection from 1.5 to 1.3 million barrels per day, citing dimmer economic prospects in Organization for Economic Cooperation and Development (OECD) member countries. Now the IEA expects oil products demand to reach 89.2 million bpd in 2011; the projection still exceeds last year's average of 87.9 million bpd, but the 2010 demand growth figure was a more robust 2.8 million bpd.
Also dragging down the oil demand outlook was yet another move by the Chinese government to control inflation. For the fifth time this year, the country's central bank decided to tighten monetary policy by raising banks' reserve requirements.
Despite the deteriorating demand outlook, however, crude oil received a boost from a weaker dollar Thursday and hit a high of $100.49 later in the day. The dollar index, which gauges the value of the greenback against a basket of other major world currencies, declined Thursday and thus indicated a weaker dollar. When the dollar loses strength, oil—priced in dollars—becomes a better value for investors holding other currencies.
June natural gas gained a penny to settle at $4.19 per thousand cubic feet. It traded within a range from $4.11 to $4.24 Thursday.
Front-month gasoline lost six cents to end the day at $3.06 a gallon. June gasoline peaked at $3.17 and bottomed out at $3.02.