Down more than 2% on a strengthening of the US dollar, oil futures tumbled below $79 on the New York Mercantile Exchange Monday, while natural gas prices remained above $4.50 per thousand cubic feet.
Light, sweet crude oil for December delivery traded $1.82 less than Friday's closing price, ultimately settling at $78.68 a barrel on the NYMEX. Earlier today, crude futures soared to an intra-day high of more than $81, while the dollar's value was still weak and equities were high.
Oil prices have recently rallied to a new, psychologically significant price of more than $81 a barrel this month, primarily spurred by a weakening greenback. On days when the dollar's value firms up against other major foreign currencies, however, investors are prompted to sell off the energy commodity.
Although this recent trend in high oil futures seemingly points to a bullish market, analysts contend that stronger oil prices are not based on an actual fundamental strength in the market, but primarily on the dollar's weakness. Moreover, with price rallies inextricably linked to the dollar's losses, trying to predict where oil futures are likely headed is now as unpredictable as the dollar's day-to-day value.
"There's so much volatility and so many cross-currents that are driving the dollar and are, unfortunately, driving commodities," noted Dave Pursel, managing director and head of macro research at Tudor Pickering Holt & Co., a Houston-based energy investment firm.
$80 Crude Rings Warning Bell
Additionally, analysts warn that if the crude price does not correct itself around $70 a barrel and continues rising toward $85 and beyond, the state of the economic recovery could be threatened.
"Once again it appears that investors are flooding money into oil markets to try and make a quick buck, despite many having had their fingers burnt last year when oil prices fell from their high of $147 to below $34 per barrel," wrote JBC Energy GmbH, a consultancy based in Vienna, to clients in a note Monday.
Pursel explained: "Crude should have never gotten to $145 last year and it did, so what you know about the crude market is that it can go lower than you think and it can certainly go higher than you think. Fundamentally, I think $80 crude is too expensive.
"The risk you run is that the economy is too fragile -- there are very few signs that demand is getting better -- and $80 kind of acts against demand recovery," the analyst contended.
Natural Gas Price Keeps Close to $5
The price of natural gas closed at $4.513 on the NYMEX Monday, falling 27 cents from Friday's closing price. As the winter season approaches, analysts see the price of natural gas remaining near a $5-point mark, but the market may push the energy commodity even higher entering 2010.
"I think natural gas prices will be better than people think next year," Pursel predicted. "I'm a little surprised that we're at $4.50 as we finish the injection season at record levels, but it seems that a lot of folks have voluntarily shut-in production," he said. "We know that production is actually falling, so we've got natural production declines, and on top of that, voluntary production shut-ins., along with colder weather, all factors which could contribute to higher prices."
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