Oil crested more than $79 a barrel on the New York Mercantile Exchange Monday as news of Gulf production shut-ins and a weaker greenback helped support a rally in energy prices.
The price of light, sweet crude oil settled higher than Friday's final pricetag, closing at $79.43 on the NYMEX, a $2-gain primarily driven by the dollar's significant loss against the euro today.
Although Ida, the first threatening storm of the 2009 season, was downgraded from a hurricane to a tropical storm early Monday, news of ongoing production shut-ins in the Gulf overshadowed other market fundamentals.
"The market weathered last week's sell-off pretty nicely to start the week," said analyst and broker Gene McGillian at Tradition Energy in Stamford, Connecticut. "While Ida did help boost the market, I think you can attribute a large part of this turnaround to the way the dollar acted today," the analyst contended.
McGillian continued, "It seems as if the weakened dollar and Ida combined took a lot of the bearish momentum from last week's unemployment report out of the market, leaving us pivoting around this $80-level and hunting for another signal as to whether this rally will continue."
Producers Willing to Evacuate on Current Stockpiles
Despite today's bearish news concerning Saudi Arabia increasing December supplies, potentially adding to the oil surplus, and China's plan to raise fuel prices, the energy commodity moved back toward the higher end of its current trading range near $80 on wider macroeconomic data.
However, $80-a-barrel oil is seemingly out of synch with the realities of the oil market; fuel inventories and U.S. distillate stocks remain sky-high with no evidence of demand ramping up in the near term and data released Friday from the Commodity Futures Trading Commission indicates that net long crude positions on the NYMEX have been reduced.
"Even though you heard of evacuations by some companies today [in the Gulf], that's more of a sign of where the stockpiles are; oil companies are more than willing to take people off [and shut-in operations] since they don't have to worry about production levels here," noted McGillian, referencing these bearish underlying fundamentals.
Natural Gas Price Picks Up as Gulf Shuts Down
Closing .075 cents higher than Friday's settlement price, natural gas futures rose to $4.670 per thousand cubic feet on the NYMEX today as the market got wind that 27.5% of the Gulf's natural gas production was shut-in as a precaution for tropical storm Ida.
"If you noticed the way natural gas came in today, the market dropped to almost a two-month low for the December contract. As the day sized up, however, and the oil markets kept rising while the dollar kept falling, gas prices firmed up later in the day," McGillian observed.
"When the Minerals Management Service announced that nearly 2 billion bcf a day is being shut down in the Gulf, the market seemed to get a boost and you saw some buying coming in to the natural gas market at the end of the day," he added.
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