Crude oil skyrocketed on the New York Mercantile Exchange in trading Monday, closing above $71 a barrel, a gain of more than $2 over Friday. Boosted by increased investments on Wall Street and a weakening dollar, the price of crude oil may surpass this year's high in no time.
With intra-day trading reaching above $72 a barrel, the price of crude oil settled at $71.58 on the NYMEX Monday. Mirroring a strong day on the Dow Jones, crude oil was also supported by the weakening value of the US dollar.
"We've been looking for these markets to turn," explained Darin Newsom, the senior analyst with DTN, a market information service in Omaha, Nebraska. "They actually remain bearish because of the fundamentals, but what we're seeing is the spillover buying in the Dow and the weakness in the dollar is sparking this idea that inflation is going to offset supply and demand concerns right now."
A renewed belief that the economic recession is at its end and demand for energy will inevitably pick up helped to spur today's rally. The analyst reported that much of the money that landed in the market today came from the non-commercial side, although there was some commercial buying.
"We had some buy signals occur on Friday in many of the energy markets; so those were followed through on today," Newsom added.
"Looking at the charts, they see that certain technical signals were given, and this gets a certain side of the market interested."
Oil May Hit $90
Newsom revealed that a turn in the crude oil market has started to occur. While the fundamentals remain bearish, the optimism in the non-commercial market may help to push the price of oil past last month's high and beyond.
"If this run in commodities can continue and the dollar stays under pressure, a move toward $90 cannot be ruled out," Newsom declared.
Oil reached the year's highest price earlier this summer, topping out just above $73 a barrel in late June. The analyst sees the market spiking above that should certain criteria be met.
"We saw a technical buy established last Friday; so we followed through on that today," Newsom explained. "Next, what we need to do is take out that high from late June, early July of $73.38. We get above that price level, and I think that brings some more money back into the crude oil market betting on the idea that it's going to keep going up then, really, again, with no fundamental support, but basically from the non-commercial investment side on the idea that this market should go up with the dollar coming down. I think that that's what pushes us back toward $90."
Despite its potential to increase, crude oil remains bearish in supply and demand fundamentals.
"The money that's coming into this market is tied more to the Dow, more to the weakness in the dollar, more to the idea that the underlying fundamentals are going to change and are going to grow more bullish," Newsom said. "They haven't done it yet, but these are the futures, and they're trying to jump ahead of them. That's what's helping push the market higher right now."
Natural Gas Closes Above $4
Exceeding months of run-around rallies that failed to push the price above $4, natural gas rose nearly 38 cents today on the NYMEX to settle at $4.031 per mmBtu.
"It's not an overly bullish market yet, but riding the coattails of just about every other commodity that rallied today, natural gas was able to post some gains," Newsom said.
Oversupply and waning demand have kept the price of natural gas low. Despite this, the commodity was able to rally.
"It's got a long way to go before it gets bullish, but as just with crude oil, just as with so many of the other markets, the fundamentals don't necessarily have to be bullish for these markets to rally," explained Newsom. "All it takes is money coming in from one side or the other; and right now you have plenty of money being generated by the 100-point-plus rally in the Dow, and the continued weakness in the dollar sparks a lot of interest in the commodities, and natural gas went along for the ride."
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