Despite earlier pressure from a heftier dollar and OPEC's decision to keep output levels steady, U.S. crude oil futures rose above $74 on the New York Mercantile Exchange on Tuesday, the commodity's support lifted by short-covering on the eve of the EIA's weekly inventory report.
Rolling in a new front-month contract for February 2010 delivery, the price of light, sweet crude oil lost $1 during earlier trading on the NYMEX but ultimately pushed back into positive territory with a gain of 68 cents to settle at $74.40 a barrel. Trading volumes for the energy commodity have already started to wane ahead of a major U.S. holiday on Friday.
Also in a light trading range with light volume, natural gas spot prices at the Henry Hub overcame initial downward pressure on the NYMEX to close higher at $5.715 per thousand cubic feet, despite national forecasts calling for warmer weather.
Holidays Usher in Good Tidings for the Economy
As Wall Street rallied on an uptick in existing home sales reported Tuesday, the S&P 500 index crested a 14-month high during the session. In tandem with rising equities, the greenback trumped both the yen and euro, which fell to a 3-1/2 month low against the rebounding U.S. currency today. While a stronger dollar usually spells doom for its denominated commodities, oil traders instead took their cue from a strengthening stock market for purchasing power.
Furthermore, the oil price gained some ground on the expectation that tomorrow's weekly inventory report, issued by the U.S. Energy Information Administration, will underscore an additional drop in crude and distillate stocks for the week to Dec. 18.
"You have to remember that on a day like today, volume was pretty light," noted Phil Flynn, vice president in charge of research for PFG Best in Chicago. "Some market participants might have been caught short and had to cover before the close, and I think that's what brought the oil price back up today."
"But really all week, stories in the market have reflected how the economy is getting better or the anticipation that it will get better," the analyst added. "We've seen that clearly in the firming dollar. If the dollar gets stronger, it will keep oil under pressure, but there's also a balancing act to it."
Flynn explained, "On the one hand, if the economy gets better, it puts downward pressure on the oil price, but, at the same time, it does increase demand expectations a little bit," which could also give prices upward momentum if supplies start to decline.
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