Despite a dip during intra-day trading, oil rallied to close above $71 on the New York Mercantile Exchange Wednesday, buoyed by a report from the EIA stating that US inventories were down for the third week in a row.
Crude oil for July delivery settled at $71.03 today on the NYMEX, up 56 cents from yesterday's close. Crude for August delivery settled at $71.70. London's Brent crude was up 61 cents at $70.85 on the ICE Futures.
The EIA today reported that US inventories were down 3.9 million for the week of June 12, which is a 1.1% drop.
The dollar fell against other currencies today, as well. Investments increase in crude when the dollar weakens because oil is traded in the US currency.
"When you take the oil market by itself, the market has doubled this year," explained Tradition Energy trader and analyst Gene McGillian. "Now that we've crossed into $70, the rally in oil prices, and gasoline prices got above $2.10, might be a bit over extended. And then a lot of the reasons that have driven the market higher in the last six weeks basically revolve around the idea that the economy is going to pick up and that the demand for energy is going to go along with it."
Despite the recent drop in oil prices this week, McGillian continues to forecast an increase to $75, but that the rise will be a little more hard-won.
"All the factors that would preclude $75 are going to be a lot more important than they were at $50," he said.
Natural gas also saw gains today on the NYMEX, closing at $4.253 for July delivery, up 12.4 cents from Tuesday's close.
"The fundamental picture in natural gas is probably the weakest of all the energy markets, and yet the market continues to try to push above $4," McGillian said. "Today is a good example: Here we are closing at month highs, and the market looks like it has further moves on the upside to go."
The analyst predicted that the market may see some circular trading, mirroring last month's activities.
"The only thing is, there really isn't anything fundamentally that can support higher gas prices," McGillian added. "I think that that's why last month's circular trade from $3.50 to $4.50 back to $3.50, the market might be in store for another scenario like that."
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