Oil Steadies on Iran, Natural Gas Continues Rally

It was a volatile day for the price of crude oil on the New York Mercantile Exchange Friday. Negative economic sentiment dropped the price lower, yet the Iranian nuclear situation helped to push the price up slightly over yesterday's close. Continuing its rally, the price of natural gas moved up on the NYMEX, edging closer to the $4 mark.

In trading Friday, the price of crude oil rallied 13 cents to close at $66.02 on the NYMEX, despite an intra-day low of $65.05. While less than stellar economic news has squashed prices nearly $6 this week, the Iranian nuclear conflict spurred fears that production may be cut off, spurring investments in oil.

"If it weren't for the situation in Iran, oil prices would have been a lot lower than they ended up," said Phil Flynn, vice president in charge of research for PFG Best in Chicago.

At the G20 summit in Pittsburg, US President Barack Obama and other western leaders warned Mahmoud Ahmadinejad, the president of Iran, against a secret nuclear plant. Concern over the hostile situation pushed the price of crude oil in trading today.

"Now, if this had happened three years ago, I think the price of oil would have been up $10 or $15," Flynn commented. "But because we're in a different era and we have a lot of spare production capacity, oil prices closed just a little bit higher in the day."

‘Oil Prices Could Collapse’

"Really oil stood tall in the face of other commodities selling off due to a rebound in the dollar," Flynn continued. "You're seeing some Iranian premium keeping oil higher in the day, when it probably in a normal day would have closed lower."

Weakening demand represented by the builds in crude, gasoline and distillates reported earlier this week by the EIA, as well as the Federal Reserve hinting toward a lessening in stimulus spending as the economy improves, has combined with weaker economic news and a strong US dollar to drop the price of oil nearly $6 in the last three days.

"Now, if we look at the bigger picture, if this Iranian situation gets resolved fairly quickly, oil prices could collapse," Flynn warned.

If the US Federal Reserve slows economic stimulus spending, the value of the dollar will most likely rebound, and the price of oil could plummet, Flynn explained.

"We have seen some preliminary signs that the market has become a bear market, and next week, we should get some early confirmation," Flynn contended. "If we follow through with what we did this week, we could see a substantial sell-off in oil as we go into the end of the year."

Natural Gas Gains Again

The price of natural gas continued its recent rally, edging closer to the $4 mark. In trading on the NYMEX Friday, the price of natural gas climbed slightly to close at $3.985 per thousand cubic feet.

After reaching seven-year lows, the price of natural gas has seen extraordinary gains in the last two weeks in a rally that threatens to break through the $4 mark. Heading into the winter heating season has helped to push the price of natural gas higher.

"What we're seeing here is the market assuring that we're going to have supplies for the winter," Flynn contended. "Natural gas prices got too low, but they're surging now, and producers have an opportunity to put on their hedges to assure the solidity of supply throughout the winter."

Earlier this week, the CEO of Chesapeake Energy reported that the price of natural gas would have to increase in order for producers to be able to continue production.

"That's what the market is doing -- we're giving these producers an opportunity to lock in a higher price," said Flynn. "If I were a producer, I would think very seriously of using this rally to lock in a price for this production because the window of opportunity to lock in this price is probably going to be fairly narrow."