Defying a stronger dollar and other bearish underlying fundamentals that usually put pressure on the commodity market, crude futures held on to yesterday's gains, remaining just above $79 a barrel on the New York Mercantile Exchange Tuesday.
Light, sweet crude oil for December delivery added an additional 24 cents to Monday's rally, settling higher at $79.14 a barrel on the NYMEX. Purchasing for the energy commodity did not falter at the end of the day, even as the U.S. dollar's value trumped the euro and the Dow remained flat while oil prices settled.
Additionally, natural gas futures traded slightly lower on the NYMEX Tuesday, closing at $4.530 per thousand cubic feet, but still keeping close to the higher end of its current trading range near the $5-threshold.
Oil Takes Its Cue from Broader Financial Markets
Many analysts were surprised by today's settlement given that oil, along with other dollar-denominated commodities, usually comes under pressure when the greenback recovers against a basket of foreign currencies. Investors often take a strengthening in value as a cue to retreat from riskier markets and instead seek safe haven in the U.S. currency.
However, a rise in the broader financial market, spurred by record gains made on the Dow Jones Industrial Average, has particularly helped prop up commodity prices over the past month.
"What we're still seeing is that the outside markets still basically have control over most of these commodities," said Darin Newsom, senior analyst with DTN, a market information service in Omaha, Nebraska.
"It was a bit surprising that with the dollar regaining Monday's losses, many of the commodities were able to rebound after selling off earlier today," Newsom added. "But I think in large part, the market's rally today was due to a lack of interest -- we saw a very light volume of trade today."
Bears Lurk in the Backdrop as Oil Bulls Take Center Stage
Last week, oil prices slipped into negative territory after the EIA's bearish report indicated that lackluster demand and decreased production levels have resulted in huge stockpiles of oil and natural gas supplies. Yet, despite the reality of this supply overhang, market participants seem determined to keep oil prices above $75, and just under the $80-threshold.
"I think crude oil is still comfortable in this range that it's in," Newsom said. "We've tested the low side near $75 last week and have bounced back, but we're still looking at bearish fundamentals and a bearish time of year."
There might also be some economic optimism influencing the market, Newsom suggested. "The Dow does continue to go higher. We've crossed 10,300 and went above 10,400, so there is some optimism. I think it's interesting that Federal Reserve Chairman [Ben] Bernanke tried to cool that a bit yesterday, saying that the economic recovery in 2010 might not be as fast as what some are pricing in right now. I thought that would have more of an effect on the market today, and thought that was partly why the dollar was rallying, while the Dow and commodities were under pressure earlier," the analyst explained.
"But, in the end, trends won out, and crude oil held its own," Newsom concluded.
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