Crude Steadies Above $76 on Mixed Economic Signals

Despite a jump-start in earlier trading on the New York Mercantile Exchange Thursday, the price of light, sweet crude oil for January delivery ended its session nearly unchanged above $76 due to a mixed bag of macroeconomic news.

Just under yesterday's final price tag, U.S. crude oil futures ultimately settled at $76.46 on the NYMEX, while natural gas spot prices at the Henry Hub also traded a bit lower to $4.459 per thousand cubic feet.

"We really got a lot of mixed signals on the economy today," said Phil Flynn, vice president in charge of research for PFGBest in Chicago.

"Early on, the weekly jobless claims number came out better than expected, and that gave the market hope that the economy was improving so we could get some energy demand going, but when we got that service sector number later in the day, that rained on the market's parade and put downward pressure on the demand side of the equation," the analyst reflected.

Market Reaches Crossroads on Mixed Signals

Usually spurring investors toward purchasing riskier assets, the dollar weakened against the euro once remarks made by the European Central Bank to gradually withdraw emergency spending surfaced in the market, helping to prop up oil prices amid today's volatile trading session.

However, news issued by the Institute for Supply Management indicating that the U.S. services sector unexpectedly contracted in November curtailed oil prices from breaking above yesterday's settlement. Specifically, the ISM services index was reduced from 50.6 in October to 48.7, registering below most forecasts.

Still looming in the backdrop, energy markets are eyeing a massive supply overhang underscored by last week's rise in crude oil and gasoline stocks, according to the EIA's data released Wednesday. On top of that, the EIA broke news of November's fourth injection into natural gas supplies today, reporting that as of Friday, November 27, working gas in underground storage increased to 3,837 billion cubic feet.

Meanwhile, Goldman Sachs today maintained its average price forecast for 2010 at $90 a barrel for West Texas Intermediate crude, but also contended that the oil price would rise to $110 in 2011.

Investors Stray from Path of Least Resistance

Moving forward, Flynn continues to see economic news as the main driver of energy markets. Crude oil prices in particular are now wedded to broader financial developments regardless of an underlying inventory glut, and investors are purchasing riskier commodities as an asset class to hedge against inflation.

According to the Wall Street Journal, oil's correlation to the U.S. currency's movements has jumped from 20%-30% in May to nearly 70%. "As with many other asset classes in this period of lax monetary policy," the Wall Street Journal noted, "prices appear less subject to fundamentals, and more to cosmic forces."

The factors affecting tomorrow's spot price and subsequent settlements in the near term will continue to validate this claim.
 

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Natural Gas : $3.64/MMBtu 0.27%
Brent Crude Oil : $53.93/BBL 1.83%
Light Crude Oil : $50.93/BBL 1.66%
Updated in last 24 hours