Oil Futures Crest $79, Could Ride Past $85 by Year's End

Edging above $79 on the New York Mercantile Exchange and continuing to top its highest point for the year, the price per barrel of crude oil ultimately surpassed last week's record gains during a choppy session of trading Monday. Likewise, natural gas prices bounced back toward a high of $5, closing less than 20 cents below that price.

On the NYMEX today, the price of light, sweet crude oil settled at $79.61, more than $1 higher than Friday's close. November's contract for crude deliveries is set to expire on Tuesday.

Lifted primarily by a drop in the greenback's value, oil futures have rallied more than 19% over the last few weeks, setting new record prices that have surged past the $65-$75 range in which oil prices were boxed for months. Nearing the final quarter of the year, oil prices are now making strides toward an anticipated, new target price range between $85-$90.

"It's been a struggle throughout the day, but late in the session there was some commercial buying coming from somewhere," reflected senior analyst Darin Newsom with DTN, a market information service in Omaha, Nebraska.

"It could be increased gasoline demand, possibly some heating oil demand, whatever the case may be, but there was some supply-and-demand buying coming from somewhere that pushed us back up. So, overall, an impressive day with the late rally, particularly with it looking as if it came from the fundamental side of the market," Newsom said.

Will Oil Prices Push Past $85?

Last week, the equities market was boosted along with riskier markets such as crude oil as the Dow Jones Industrial Average hit above 10000 points. However, analysts continue to point out that oil inventories remain higher than before the recession. Further, the EIA has forecasted that oil demand will wane by 1.7 million barrels a day.

Despite this, crude oil futures rallied last week amid an EIA report showing a substantial drop by some 5 million barrels in gasoline stocks. With both the crude oil and natural gas price rising today, analysts are suggesting prices will continue to spike toward unprecedented highs for the remainder of the year.

"I think it's going to make a run at $90, with a large part of it due to the continued weakness of the U.S. dollar and possible continued rally in the Dow Jones," Newsom predicted.

"If and when either of those two begin to change direction, I think some of the commodities could start to come under pressure. Now crude oil, to its benefit (whether you want to call it that or not), has seen its future spreads really starting to tighten. If we go from a contango into a backwardation situation, then we've got a tighter supply and demand than what has been indicated for quite some time," he explained.

"But I don't think that's going to happen," Newsom added. "I think a lot of this [rally] has to do with the weaker dollar sparking some possible demand, and at some point this month, we should top this market out," the analyst contended.

Natural Gas Rally Keeps Pace

Inching back toward $5, natural gas closed at $4.835 per thousand cubic feet on the NYMEX Monday. "Natural gas like most of the other commodities was able to rally today," Newsom said. "I think it's pulling in money from more of the speculative side of the market. Again, we're not looking at a tight supply-and-demand situation in natural gas," he stressed.

Newsom continued, "For natural gas, I don't think the market's overly worried about the long-term forecast right now calling for the possibility of a cold winter, since those things come and go. I think you've got some short-covering going on in this market, which is helping to provide support," the analyst concluded.