Dollar-Driven Rally Pushes Oil Prices Back Above $81

Resuming last week's trend, the greenback's value was struck down once more against a basket of foreign currencies Wednesday, which has jump started another dollar-driven rally that is lifting the energy commodity's prices toward record-breaking highs for 2009. On the other hand, the price of natural gas stumbled today as colder temperatures receded.

Climbing to more than $82 a barrel during today's intra-day trading session on the New York Mercantile Exchange, the price of light, sweet crude oil ultimately settled at $81.37, its highest level of the year and more than $2 from yesterday's closing price for December delivery.

"Another new high for the year, and you hate to sound like a broken record but with another low for the dollar, and another high for the euro, oil is off to the races again," said Phil Flynn, vice president in charge of research at PFG Best in Chicago.

"Today the market definitely had some upward momentum, and it looks as if it is reacting to the weak dollar," Flynn reflected. "This is a dollar-driven rally," the analyst stressed, "it's more dollar-related than anything else."

Big Draw in Gasoline Inventories

While a weaker dollar was the main impetus for higher oil prices today, buying for the energy commodity was further spurred by the EIA's newly released data indicating a larger-than-expected draw in U.S. refined oil inventories by 2.3 million barrels. U.S. crude inventories, however, increased by only 1.3 million barrels and not by an anticipated 1.8 million barrels.

"With the big drop in refinery runs and gasoline supplies, there's a concern that supplies are going to tighten even further and lead to a spike in prices," Flynn noted. "Refinery runs are well below normal, and in two weeks, we've lost gasoline supply as if Refinery Row was hit by a hurricane, and it wasn't."

The analyst continued, "Right now, we have plenty of gasoline to meet demand. What's driving the market is the trend that refinery runs are going to continue to fall as the market continues to rise."

"But, if it weren't for the dollar being weak, we probably wouldn't have seen refinery runs drop as much as they did, and if the dollar wasn't this weak, we probably wouldn't see demand expectations so high," Flynn reminded.

Natural Gas Prices Trickle Down

Settling just below yesterday's price, natural gas closed lower at $5.100 per thousand cubic feet on the NYMEX Wednesday. Warmer temperatures caused a slight sell-off  today, but the natural gas market is awaiting a pick-up in seasonal demand for the winter to drive prices higher.

"Despite the run-up in oil prices, natural gas prices went the other way,"  Flynn said. "One of the reasons is that the natural gas market, being a domestic market, isn't as influenced by the dollar as some of these other markets, and so today, I think the market was responding to warmer temperatures," the analyst explained.