The price of crude oil climbed 25 cents on the New York Mercantile Exchange Friday, closing the week on a rally but staying within the current trading range.
With intra-day trading reaching a peak of $73.52, the price of oil ultimately gained 25 cents on the NYMEX to settle at $72.74 a barrel Friday. While positive economic news has been able to bolster the price of oil, the underlying fundamentals continue to keep the commodity below $75.
Non-commercial investors have been buoying the price of oil, buying the commodity on the hope that the global recession is on the mend and that demand for energy will rebound alongside the economy.
“It’s a question of whether or not we’re going to see a good enough sign that the economic recovery is taking root that demand levels for energy are going to keep increasing,” said Gene McGillian, an analyst with Tradition Energy in Stamford, Connecticut. “We’ve seen four times that the market has gotten up to the mid-$70 area in crude oil, and it’s had to retreat because there isn’t a strong enough signal yet.”
Possibility of Another Oil Rally
Recently, the oil market has been trading within a range of $65 and $75. While economic optimism has been able to push the price of oil beyond what the supply and demand fundamentals support, economic news has not been strong enough to push the price past $75, the 2009 high that was reached earlier this week.
“I think that it is significant that the market made a new spot month high and then dropped as far as it did and then came back to just below $73 at the end of the week,” McGillian commented. “I don’t think you can really put too much into today’s trading, other than the market seems to be teetering.”
Typically, crude oil breaks out of the high demand driving season with the start of autumn, with prices historically falling over the fall and winter seasons. Despite this, there remains a bullish hope for another rally in the market.
“If we get some more positive economic data that leads to further confirmation that we’re going to see a rebound in demand levels as we go into the fourth quarter and the first quarter of next year, we going to add another leg on the rally,” McGillian stated. “The question is whether or not they are going to materialize in the next month.”
Natural Gas Begins New Contract, Stays Low
Natural gas began the October contract today, closing 17 cents lower at $3.033. While the September contract expired at $2.843, the contango could not keep its strength.
“We had a 40-cent differential from the first and second month; and once we got the spot month off, the fundamentals just pushed the gas prices right back down to $3,” McGillian explained. “We’re on the precipice of going back into that new seven-year low territory that September had gotten into.”
Diminished domestic and industrial demand combined with record inventory have pushed the price of natural gas lower than it has been in seven years.
“There’s nothing really to support the gas market, other than if we get a rally from across the complex or you have a major hurricane suddenly appear on the horizon, but there doesn’t seem to be any significant heating demand levels for the summer right now,” McGillian concluded. “The market looks like it wants to continue on that path to find a bottom.”
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