Oil Falls Back Toward $72, Natural Gas Gains Again

After starting the week below $70, crude oil managed a strong rally during the week on positive economic news. The price of crude oil bobbled a bit today, but remained above the $72 mark. Natural gas continued gaining after a breather yesterday, to close near $4.

A somewhat flat trading day on the New York Mercantile Exchange, the price of crude oil fell 43 cents to close at $72.04 a barrel on Friday. Today marked the October option expiration for the commodity, and November’s contract was not much higher, closing at $72.49.
Climbing from Monday’s close of $68.86, crude oil closed at $72.51 on Wednesday. Both Thursday and Friday, the commodity slipped closer to $72 a barrel.
“This week in energy started out with a lot of sizzle, and we kind of fizzled,” commented Phil Flynn, vice president in charge of research for PFG Best in Chicago.
Despite a year-low reached earlier this week, the value of the US dollar gained strength today against other currencies.
“It seems that the oil market really can’t make a move without the approval of the stock market or the dollar, and hence we had a pretty boring option expiration,” Flynn added.
Stalled Oil Rally
Supported beyond underlying supply and demand fundamentals, the price of crude oil has been trading higher on positive economic news pointing to an economic turnaround in the global markets.
On Wednesday, US Federal Reserve Chairman Ben Bernanke said that the recession was most likely over, but that a recovery would be slow moving. If the economy recovers from what some analysts have been calling the worst recession in the US since the Great Depression, most expect energy demand to grow substantially.
“I think what it shows is the market has reached a level where it is very uncertain, and I think that is why we saw this market end up pretty flat,” Flynn explained. “We responded to good economic news earlier this week; we priced in a little bit of the better economy, but we have a very difficult time breaking out to the upside because we’re just not sure how that’s going to translate into future energy demand.”
Before making major gains, the market is looking for a clearer signal that the economy is rebounding. While the economic data released this week was positive, it was not enough to push the price of oil out of its current trading range.
Natural Gas Climbs Closer to $4
Closing a very strong week for natural gas, the price per thousand cubic feet rose 32 cents to settle at $3.778 on the NYMEX, the highest close this week.
After trading at seven year lows for weeks, natural gas experienced a rally that has taken the price from near $2.50 to almost $4 per thousand cubic feet.
“Earlier this year, we priced in record storage, and the market started to see that production was starting to be affected,” Flynn commented. “We heard reports that production was going to fall in the United States and Canada, and the market responded.”
While the supply and demand fundamentals remain bearish, the upcoming winter heating season has sparked some buying in the market.
“If prices start to go up, it should be enough to make sure the producers produce enough to get us through the winter,” Flynn added. “I think the markets are working fabulously, and they’re really doing a job making sure that we’re going to be well supplied this winter.”
After such explosive gains this week, many are asking whether the price of natural gas will continue to rally.
“I think we’re in an era of steady prices, and unless we get an unusually cold winter, prices are going to be fairly stable,” Flynn revealed. “It wouldn’t surprise me to see a range this winter -- if we get really cold, $5 on the upside and on the downside probably $3.”