Crude oil gained 4.5% today in trading on the New York Mercantile Exchange. Climbing more than $3 on Tuesday, the price of oil was bolstered by a weak dollar.
After a long holiday weekend in the US, the price of crude oil grew $3.08 in trading Tuesday to settle at $71.10 a barrel on the NYMEX. With the value of the US dollar falling to the lowest it's been this year against the euro, the price of oil found strength on the market.
"The weakness in the dollar was the real boost that the market was given, but I think that we're still trading pretty technically because we're in a trading range that we've been now for the last three months," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.
Thought of as a hard asset that will keep its value, investors tend to buy crude oil as a hedge against inflation.
"It looks like it's attempting to establish a trading base around the $70 area until we can get a clearer signal as to what's really going to happen on the demand side of the equation, and that's still up in the air right now," McGillian continued.
The price of oil has been locked in a trading range between $65 and $75 for the majority of the summer, although the commodity has made several attempts to break out of that range. While the price of oil has been buoyed by economic optimism that the recession is waning and energy demand will increase, crude prices have been stifled by economic uncertainties.
McGillian reported that much of the investments in crude have been based on positive data coming out of Asian markets, especially energy demand in China; but some fears have been spreading that the recovery in China has been based more on economic stimulus spending than an actual economic turnaround.
"That's why the market has had three unsuccessful attempts to trade through $70 and hold above there," McGillian added. "As we go into the fourth quarter, we're probably going to get a clearer answer to that."
OPEC Meeting Wednesday
The Organization of Petroleum Exporting Countries is meeting tomorrow in Vienna for its 154th official meeting. The 13-member oil-producing cartel is expected to keep production steady at tomorrow's meeting, after having made previous cuts to output in an effort to overcome a surge in supply and help buoy the price of oil.
"You're going to see some of the stockpiles that have been built up in Western Europe and the United States start to be drawn down, and that's going to bring a boost to prices once it occurs," McGillian predicted.
Should OPEC keep production steady and the demand for oil increase, the price of crude will very likely be positively impacted.
Natural Gas Follows Energy Complex
The price of natural gas got a slight boost in trading today, closing at $2.807 on the NYMEX Tuesday. The commodity tracked other energy commodities up, despite reaching a more than seven year low last week.
"Once you've made a seven-and-a-half-year low, there is a certain reluctance to dive further into the pool," McGillian explained. "Then as the market turns, the new shorts are nervous because of the multi-year lows returning again and the danger of the upcoming winter, and they're rather quick to abandon the short side of the market."
Natural gas has been plagued by a record stockpile in the US and diminished industrial and domestic demand. Additionally, this year's mild Atlantic hurricane season has not threatened offshore installations and Gulf Coast refineries like years past.
"Unless something really kicks up across the complex, I think natural gas is going to have a really difficult time sustaining any type of rallies above the mid-$3 area until we get closer to winter," McGillian concluded.
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