Oil Gains for 5th Day, Natural Gas Sees Potential

After choppy trading Tuesday, crude oil was able to make gains again on the New York Mercantile Exchange. With intra-day trading topping $65, oil prices eventually settled just below that.

Crude oil settled at $64.72 a barrel in trading on the NYMEX Tuesday, a bump of 74 cents from Monday's close. Despite some volatile trading during the day and the expiration of the August deliveries, crude oil was able to continue its recent rally for the fifth day in a row.

"It seesawed pretty dramatically, and then the market did rebound strongly as we went into the last half-hour for expiration; and I think that helped boost oil prices to its fifth consecutive day gains," said Gene McGillian, an analyst with Tradition Energy. "You saw some profit taking, but the market managed to hold the overnight high from the afternoon; and once it turned again, the expiration precision score boosted the market to its gains by the end of the day."

How High Will Crude Go?

With the present rally bumping the price of oil up $7 from its bottom below $60 last week, the price of oil may very well be back on its way to above $70. An improved view of the economy and its potential to recover has helped the crude market recently.

"The factors that drove it up to $73 seem to be getting a louder drum beat," explained McGillian. "If we cross through a couple more levels, that drum beat is going to probably boost the kind of investment inflow that we saw back in April and May when we traded up to $73."

Despite this, the fundamentals do not necessarily support oil trading this high, but only time will tell.

"It's going to be a battle here because I really am skeptical that some of the fundamental underpinnings of the markets are really pulling toward a move back to $75, but I think in the next few days we'll get a clearer indication if that is in the cards," he concluded.

Natural Gas Makes Gains

While it remains below the $4 mark, natural gas on the NYMEX has made recent gains. The commodity settled at $3.705 per mmBtu in trading Tuesday, a slight increase over Monday's close.

Lately, poor fundamentals of oversupply and weak demand have helped to push the price of natural gas to six-year lows.

"Natural gas is trying to hold onto its gains from last week after the latest EIA storage report came out," McGillian reported. "This is the second attempt now to rebound from the lows that we saw back in April, and it looks like right now it's trying to hold on to its gains. It's receiving support in the last few days from rising oil and equity prices."

The analyst sheds some hope on the natural gas market pointing to both decreased drilling that will help with the oversupply in the market and the impending hurricane season in the Gulf of Mexico as contributing factors for a potential price increase.

"There is an underlying sentiment that the storage injections that we've seen in the last few months are beginning to see the effects of some of the falling rig counts that we've been watching since last September, but I think that that's in the very beginning stages -- if it's even happening -- of showing up," McGillian explained.

"The market is also close to the prime hurricane months, and I think that as we get closer to August, the reluctance on the part of the market participants to sell with the hurricane season is going to grow even greater," he added. "Given the market's short bias, it's vulnerable to upward price movements. I think that we can expect some more of that, especially if we continue to see support from the oil and equity sectors."