Soaring on the wings of positive economic news, oil closed $1.84 higher Tuesday on the New York Mercantile Exchange to settle above $71 a barrel. Also taking flight during today's trading, natural gas increased to more than $3.60 per thousand cubic feet.
Recovering gains made last week, crude oil for October delivery rose on the NYMEX to close at $71.55 per barrel -- a jump of more than 2%. Usually affecting the rise and fall of the energy commodity's price, the dollar weakened to a near one-year low against the euro today helping to spur a rally in oil prices.
As analysts have continued to underscore, the market remains fundamentally the same; however, the energy commodity has consistently bobbled between the $67 and $75 range, supported by hopes of eventual economic recovery and an imminent upswing in energy demand.
"I think that the market continues to reflect price swings in the broader financial market," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut. "I think today we saw the effects of the dollar sliding almost to a year low against the euro and that boosted a lot of speculative buying interests in the oil markets, and prices basically reflected that strength all day."
The analyst noted that the oil price seems to be building a base around $70 per barrel and sees this as a sign that upward global demand will be tested, "but whether or not it can hold anything as it climbs is a real tough question to figure out," he added.
Potential Upturn in Demand
Helping to bolster today's market optimism, Saudi Arabia's Oil Minister Ali al-Naimi revealed that oil demand appears to be increasing -- a positive sign of economic growth -- adding in an interview with Reuters that he hopes the economy "will recover fast and therefore impact demand." Additionally, the minister noted that he does not expect OPEC to reduce its output next year.
"Of course it [the oil minister's comments] would be supportive [to today's prices]. I don't think that he was very definitive in saying what kind of increasing demand there is, but the market has been searching for signs that global demand for energy is picking up, and basically that's the underlying factor behind the economic recovery taking effect. I think that everyone is watching for signs like that," McGillian commented.
Oil prices also edged up Tuesday as news concerning U.S. oil inventory data from both the American Petroleum Institute (to be released Tuesday) and the Energy Information Administration (to be released Wednesday) surfaced during trading. According to a Reuters poll, analysts have forecast a rise in U.S. domestic oil products inventories and a drop in crude stockpiles.
"One of the things that has been fairly supportive of oil prices in the last few weeks of trading is how they've been able to erase some of the domestic stockpiles of crude oil in the United States. In the last five weeks of trading, we've basically taken nearly 20 million barrels of storage out of inventories, and I think a lot of people have viewed that as a sign that demand is starting to firm up a bit, but I think that there is more to go for the market to move up," McGillian explained.
Natural Gas Rallies Further
Although the price of natural gas dropped 20 cents during yesterday's trading, the energy commodity settled on the NYMEX Tuesday at $3.609 per thousand cubic feet -- still more than $1 higher than at the start of the month.
"Natural Gas is not completely independent of the other energy markets, and I think you've seen that reflected in the strong rally we've seen since the beginning of the month. You've got gas prices here at these levels up more than a dollar from the lows of the month, and right now the market seems to be attempting to consolidate above $3.50," McGillian concluded.
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