Crude oil surged more than a dollar today in trading on the New York Mercantile Exchange, boosted by another attack on oil installations in Nigeria, as well as a report yesterday from the Federal Reserve.
Crude settled on the NYMEX at $70.23, which is a gain of $1.56 from the close on Wednesday. Natural gas rose slightly, as well, to settle at $3.844 for July delivery.
In West Africa, local military group Movement for the Emancipation of Nigerian Delta (MEND) announced another round of attacks. According to a report from Bloomberg, the Shell-operated Bille-Krakarama pipeline delivering to the Bonny terminal was sabotaged in the OPEC-member country.
"Everybody's going to be talking about Nigeria, and sure, the Nigerian situation is very bullish for oil," said Phil Flynn, who serves as vice president and senior market analyst for Chicago-based Alaron Trading. "But really it's the accumulation of the Nigerian attacks; finally the market might be taking notice."
Additionally, Flynn felt that Wednesday's statement from the Federal Reserve helped to elevate the price of oil. By reporting that inflation will stay subdued for the near future, by not raising the $1.75 trillion bond-purchase program and by keeping interest rates at low levels, the Fed has encouraged traders to return to the oil market.
"I think that traders that covered their positions ahead of this Federal Reserve meeting on the concern that maybe this Fed policy might change, decided to get back into the market," said Flynn.
Inversely related, as the dollar loses strength, the price of oil tends to rise.
"If you're going to print money to try to stimulate the economy, that's going to be very dollar bearish, and if it stimulates the economy, demand for oil is going to be better than expected," Flynn explained. "I think that people are realizing that unless the Fed changes its policy, then oil is the place to be."
Additionally, the Federal Reserve did not appear concerned about the rising cost of energy.
"They did mention that energy prices had gone up, but it was the Fed's belief that because there was so much supply in the marketplace that, that increase would be relatively subdued," he continued. "The oil traders would take that as a bullish sign, because it seems that the Fed is unconcerned about oil prices; so if they are unconcerned about oil prices going up, then I think the traders are too. That's why we're caught back into the long side of oil."
Ultimately, the price of oil may be able to break another barrier, rising even further than this year's high on June 11 of more than $73.
"The next couple of days are key if we continue on this trend," Flynn concluded. "Seventy-four dollars is the big resistance, if we get above there, we should make a run toward $80."
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