Oil Closes Near $80 'Comfort Zone', Nat. Gas Market Could Heat Up

Investors stuck to their guns during a choppy trading session on the New York Mercantile Exchange Tuesday, as oil closed near $80, despite the greenback's recovery and news that U.S. consumer confidence waned in October. Additionally, the price of natural gas held on to yesterday's gains and crept back toward $5 per thousand cubic feet.

The price of light, sweet crude for December delivery settled 87 cents higher on the NYMEX today at $79.55. Oil prices have retreated from last week's intra-day high of $82 due to a recent strengthening in the US dollar's value; however, oil prices are still at their highest levels for 2009 and could even top these record, although some argue "overpriced," levels in the coming weeks.

Boom or Bust in Oil Prices

Given that the market's supply-and-demand situation is still fundamentally bearish, many analysts believe that oil prices are higher than they should be at this current "comfort zone" near $80 a barrel.

"Although I wouldn't call this a bullish market yet, the market is certainly in an uptrend," observed Darin Newsom, senior analyst with DTN, a market information service in Omaha, Nebraska. "We've got money coming into this market, and we're starting to see some commercial buying tied to supply and demand coming in that is building a support level around $80," he explained.

"If the dollar continues to strengthen, however, it's going to be very difficult to push crude oil much higher without some sort of supply and demand rationale," Newsom warned.

Undervalued Market May Heat Up in 2010

The price of natural gas closed at $4.557 on the NYMEX Tuesday, rising .044 cents from yesterday's closing price. While natural gas is holding fast to its $5-point mark in the near term, this energy commodity could experience an uptick in demand, as well as price, within the next year.

"We've seen some support coming into the natural gas market," Newsom stated. "At the end of September, it established a longer-term buy signal, and I think it has been pulling some money in and is going to try to rally a bit," he contended.

Although the natural gas market still has some underlying bearish fundamentals to deal with, the analyst believes this market could heat up in 2010.

"It's lost ground to so many other commodities for so long that it might finally be attracting the type of buying and the strength of buying to push it higher," Newsom said.

Just how high might natural gas prices run up to in the next year? Newsom holds to an initial target price of $6.13, but predicts that prices could potentially rally to more than $8 depending on market conditions.

"I know that's a high range, but depending on what happens and how much momentum this market can build, there's an outside shot of natural gas prices getting that high," the analyst concluded.