U.S. crude oil futures tested close to $84 on the New York Mercantile Exchange Monday, but ultimately booked a 23-cent loss at the end of its session as the market sold off the overbought commodity amid national forecasts calling for warmer temperatures.
Reaching a high of $83.95 on today's NYMEX, the price of light, sweet crude oil for February delivery settled slightly below Friday's final price tag to $82.52 a barrel. Also trading on the downside, natural gas spot prices at the Henry Hub for February delivery moved further below a $6-threshold to close at $5.454 per thousand cubic feet.
"Some of the crude oil market's gains coming in may have shown that the market was a little overextended," said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. "After the market's failure to break above $84, it seemed as if weakness in the fuel market kept crude from forging back into positive territory."
Earlier today, oil prices surged above $83 on news that China exited 2009 with record monthly imports of crude oil averaging more than 5 million barrels per day.
Also encouraging positive momentum at the open, Citigroup unveiled its expectation for oil to push toward $90 in the coming months. Furthermore, the firm's analysts increased oil's long-term price from $65 to a more bullish price of $80 a barrel.
Temperature Gauge Rises, Heating Demand Falls
Adding pressure to today's energy spot prices, the National Weather Service issued a forecast for normal heating oil demand this week, following above-normal demand the previous week to combat freezing weather conditions across the globe.
Citing DTN Meteorlogix, Reuters also reported Monday that temperatures in the U.S. Northeast, the world's largest heating oil market, are expected to average below normal through Wednesday, and subsequently average near to above normal heading into the weekend.
"Forecasts for the latter part of January have turned warmer, which eliminated some of the underlying support for the crude market. Investors may have felt that some profit-taking was in order," McGillian contended.
Additionally, the analyst underscored the effect of sunnier forecasts on another NYMEX energy commodity, which has predominantly relied on winter heating demand to shed some of its steep inventories.
"The natural gas market has been tied to weather-related factors that drive prices up and down," McGillian noted. So long as the market has substantially cold weather to accelerate heating demand, natural gas futures will find support, he explained.
"But, the analyst added, "you also see the effects once investors become convinced that we will have warmer weather. Automatically some of the longs will bail out, and that is why the market has dropped to new three-week lows."
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