Oil Dips Again, Stays Below $60
Crude oil on the New York Mercantile Exchange continued dropping in trading Monday, ultimately losing another 20 cents by the close. Bearish fundamentals are blamed for the recent slide that's taken the price per barrel from near $73 in mid-June to below $60 today.
Starting the week with another dip, the price of crude oil settled at $59.69 a barrel in trading Monday on the NYMEX. With intra-day trading dropping as low as $58.32, crude oil has fallen more than 10% in trading this month.
Basing their opinions on bearish fundamentals, analysts are pointing to even lower prices for oil in the days to come.
"I still think we want to go down between $52.80 and $45.90, somewhere in that range; I think the market wants to leak down that low," said Darin Newsom, the senior analyst with DTN, a market information service in Omaha, Nebraska. "We've got bearish underlying fundamentals."
Additionally, natural gas prices fell another 11 cents today from Friday's close to settle at $3.263 mmBtu. The natural gas market has not been able to rally above $4 for some time now.
The analyst believes that the price of natural gas will continue to fall.
"It's the $3.155 mark that we'll be watching; that was the low from the week of April 27," Newsom said of the next bottom he predicts in natural gas. "If we take that out, then this market should continue to drift lower. Fundamentally, again, it's bearish; there's no one looking to buy this market, no reason to get excited short-term about getting into this; they're going to be able to buy it cheaper longer term."
Changing the Rules
Recently the US Commodity Futures Trading Commission threatened to tighten the rules in place to restrict manipulation of the prices, something blamed for last summer's price hike in oil. While some point to this as a factor in the recent drop in oil prices, Newsom does not give that much credit.
"Yes, we've seen a lot of volatility in the market; we've seen a lot of volatility in a lot of markets," said Newsom. "The difference is there are position limits in place in the commodity markets. They left loopholes in those position limits that allowed things to get out of control. If we just closed the loopholes in trading commodities and enforced the position limits that were already in place, then we don't need a whole bunch of new rules and regulations governing commodity trade."
Should new rules be enacted or even the existing loopholes closed, there is some possibility that prices in the commodity markets will fall.
"It certainly could work to push some money out of the market, though I think there's still enough interest out there in capitalizing in moves in energy that money will find a way to trade," he said.
Nonetheless, Newsom said that these kinds of regulatory changes are often batted about this time of year.
"It seems like this talk dies down as the markets come down seasonally, and then they heat up every summer once the markets make their rallies," Newsom explained. "I don’t know how far this will go. If there's actually enough backing for some major changes this year, we'll see."
Bearish Factors Affecting Prices
According to Newsom, there are three main factors that are pushing the price of most all commodities down: seasonality, the stock market and fundamentals.
"This is when interest in energies, this is when demand for energies begins to come down," Newsom explained of the weak seasonal demand. "We've passed our peak driving season. Everyone's getting ready to go back to school sooner or later. We actually posted a seasonal high in gasoline earlier than we normally do, indicating just how weak this market actually is."
Additionally, the uncertain state of the economy is warding off potential buyers.
"We have some questions over the Dow Jones," he added. "Yes, it was up today, but longer term there is still a lot of question over if we've turned the corner in this market or not. And you add in the fact that CFTC might be changing the rules, and people want out of the commodities. So we're seeing some long liquidation from the non-commercial side of the market."
Finally, the market is simply suffering from weak fundamentals, causing the market to turn bearish.
"There's just no reason to get excited about these markets from any angle that you look at them."