Oil Hits Highest Price of 2009, Natural Gas Sputters

Surging to its highest price of the year and persistently running ahead of bearish fundamentals, crude oil topped out at more than $75 a barrel on the New York Mercantile Exchange Wednesday, bolstered by another drop in the dollar's value against a basket of foreign currencies.

Conversely, the price of natural gas dodged last week's high of $5, dropping more than 15 cents from Tuesday's close.

After rallying to a high of $75.40 during intra-day trading on the NYMEX Wednesday, the price of light, sweet crude oil finally settled at $75.18 a barrel. Despite significant builds in stockpiles and lackluster oil demand, oil prices have more than doubled from December's low of $33 and have consistently traded between $65-$75. Today, however, the oil price finally broke out of this range, potentially heading toward a new quarterly target.

Additionally, the Dow Jones Industrial average reached 10,000 points during its trading session today, the highest level since October 2008, which helped pull the energy commodity's price along with it.

"The Bulls had everything go their way today, whether it was the economic data or news out of China, which really gave the commodity market some support," said analyst Phil Flynn, vice president in charge of research at PFG Best in Chicago.

China, Can You Spare a Dollar?

Most analysts agree that crude's recent rally is primarily supported by the dollar's weakness, which, according to Flynn, has been "an ongoing story." Declining in value every day this week, the greenback plunged to its lowest level Wednesday since August 2008.

"Obviously when we look at what's happening with oil, everyone's going to talk about the dollar and everyone's going to talk about the Dow 10,000, but this rally really began overnight," revealed Flynn.

Today, Asian economic data helped to spur the market's optimism concerning an economic rebound. China, in particular, showcased strong growth figures for its September oil imports.

"Basically, today's rally is about China and import and export numbers, which really got the market going this morning when it was reported that its import and exports did not drop as much as analysts thought," Flynn said.

"Then, of course, we got the retail sales numbers later on, which where better than expected and may have actually slowed oil's rise just a bit because the dollar temporarily seemed to get some new support," Flynn continued. "But after that support, the value of the dollar weakened again and the oil price closed above $75."

Whether investors were reacting in response to global economic data and financial developments that confirm a shift toward economic recovery remains to be seen as US firms begin to report quarterly earnings this month. Regardless, China's year-on-year growth is a positive development for the market.

"I do think the China news was bullish," Flynn stressed. "I think Asian demand is going to be a key thing we'll be looking out for."

Natural Gas Sputters

On the other hand, natural gas settled lower today at $4.436 per thousand cubic feet on the NYMEX. Last Thursday, the energy commodity soared to more than $5, despite bearish underlying fundamentals.

However, with inventories high the recent rally in natural gas prices has since sputtered to a halt.

"Wow, what a difference today with oil going one way and natural gas going other," Flynn mused.

"It's obvious that natural gas got a bit of a reality check. The last couple of weeks we saw this big run-back in natural gas, but I think that people were speculating that because prices were low we've cut back on production," he said.

Since the start of October, some analysts believed seasonal domestic demand would be the primary impetus for higher prices during the winter. However, Flynn points out that despite a recent drop in temperatures, the price of natural gas has dropped as well.

"This week we got kind of a false start of winter," the analyst added. "We got a real big cold blast with record temperatures over the weekend, and natural gas rallied on that news, but who's kidding who? If anything we have a record amount of natural gas in storage, and that's going to be very difficult to overcome in the near-term."