Oil Price Rallies Alongside Gold, Natural Gas Edges Higher

Defying the dollar's strength and weaker equities, two underlying factors that would usually spur investors away from purchasing the energy commodity, the price per barrel of crude oil rallied above $79 on the New York Mercantile Exchange today. Likewise, the price of natural gas closed slightly higher Tuesday, remaining just under $5 per thousand cubic feet.

Inching closer to the higher end of its trading range near $80 a barrel, light, sweet crude oil traded $1.47 more than yesterday's final pricetag, ultimately settling at $79.60 a barrel on the NYMEX.

"Early on, oil was really going down on a strong dollar. People seem to be adverse to risk and were running to the dollar as a safe haven, which put pressure on oil prices. But later in the day, when we got the strong number on construction spending, everything seemed to turn around, and we saw oil dig itself out of a deep hole," said Phil Flynn, vice president in charge of research for PFG Best in Chicago.

"That [rally] really was on strong economic optimism; if you look at the strong manufacturing number and the strong construction spending number, both bode well for energy demand," the analyst added.

Oil Glitters with Gold

Rallying in spite of fundamentals, crude prices were lifted alongside another NYMEX commodity. Gold broke new ground above $1,080 per ounce on Tuesday led by the International Monetary Fund's 200-tonne sale to India's central bank.

"People are buying gold because they think that the policies of the Federal Reserve to save the economy are going to be very inflationary, and they would rather hold on to gold than they would the U.S. dollar," observed Flynn.

"That is the backdrop to why gold has been above $1,000 an ounce and near a record high for some time. But what really drove gold today was the biggest central bank purchase of gold perhaps in the last 30 years," the analyst explained. 

Some analysts point to gold's impressive rally as another technical factor that contributed to investors trading higher for crude oil.

"There was one point in the day when gold was up and oil was down, but I think as the day wore on people realized that gold wasn't going to come down," Flynn said. "So gold's rally did become an effect because investors start looking for the cheap commodity to buy, and oil looked cheap."

"But," the anaylst added, "I don't think oil would have been higher if it wasn't backed up by some of the other strong data."

Natural Gas Climbs Toward $5

Having tumbled below last week's highs above $5, natural gas futures settled at $4.935 per thousand cubic feet on the NYMEX Tuesday, a smidge higher than yesterday's close.

"Natural gas is up in spite of almost every operator stating that they are going to increase production next year," noted Brian Uhlmer, research analyst with Pritchard Capital.

"With that being the case, it seems that natural gas is going to be constrained on the topside at least through the winter somewhere between $5 and $5.25," the analyst predicted.