Oil Steadies After Yesterday's Rally, Natural Gas Loses Steam

After choppy trading on the New York Mercantile Exchange Thursday, the price of oil ultimately climbed to close near $71 a barrel. On the other hand, the price of natural gas slipped, but remained above $4 per thousand cubic feet.

Choppy trading on the NYMEX Thursday saw the price of crude oil vary, with a sell-off early in the day and a rally toward the end. By the close of floor trading, the price of crude oil settled at $70.82 a barrel, a gain of 21 cents.

A number of contradictory factors affected the market today, from a strengthened dollar to less-than-stellar economic news, as well as tensions over talks with Iran.

"You may have had an attempt to follow through on yesterday's rally up on the one hand, and then you equally had a number of attempts to drive the price down," said Jan Stuart, global oil economist at Macquarie Group in New York.

Contradictory Contributors

The price of crude oil rallied nearly $4 on the NYMEX Wednesday, spurred by end-of-the-quarter short covering and a mixed inventories report from the US Department of Energy's EIA. In its weekly report, the EIA revealed a draw in gasoline, but builds in both crude oil and distillates.

"I didn't think there was all that news in there; it was the same trends," Stuart contended. "The refinery runs were down a little bit; the crude oil imports are still relatively high. So crude oil inventories were up some, which again is not exactly bullish. Demand is still very poor, I would argue."

While the price of crude oil has been able to climb from the low $30s at the beginning of 2009, the fundamentals in the market have recently become weaker. Despite the rally, the price of crude oil remains within the range of $65 to $75 that it has been trading in for the past several months.

"What has kept prices from going down I quite suspect is similar to what drove prices up in the first place yesterday, which was the end-of-quarter inflow of money into the space," Stuart explained. "There was no real fundamental reason that I can find for which prices suddenly ran up $4."

Bearish economic news counteracted against the rally, including a report from the US Labor Department that the number of US workers seeking unemployment benefits climbed last week. Furthermore, US manufacturing numbers released by the Institute for Supply Management were unexpectedly low.

"There is perhaps a sideways glancing at what would appear to be 'constructive negotiations' with Iran," Stuart added. "Quite what that means for oil is always debatable, but in normal times that would be another factor for things to go down."

Tensions with Iran over its nuclear program have escalated, leading Western leaders to engage in talks with the OPEC nation in Geneva today.

Natural Gas Drops

The price of natural gas fell 37 cents in trading Thursday to settle at $4.466 per thousand cubic feet. After a massive rally over the last couple of weeks, the price of natural gas may be steadying.

While the price has climbed from seven-year lows, the current natural gas rally may not have enough strength to clamber above the $5 mark. Bearish supply and demand fundamentals, highlighted by diminished industrial demand because of the economic recession, continue to weaken the natural gas market, despite the upcoming winter heating season.

Furthermore, a report released by the EIA Thursday revealed that US inventories of natural gas have reached record levels, spiking at an all-time high of 3.589 trillion cubic feet.