Crude Futures Rally on Surge in Equities, Dollar's Fall

Running up more than $2 on the New York Mercantile Exchange Monday, oil closed at the higher end of its current trading range just under $79 a barrel, spurred by a surge in the equities market led by renewed economic optimism, as well as a weakened greenback.

Light, sweet crude oil for December delivery traded up $2.55 from Friday's one-month low pricetag to settle at $78.90 on the NYMEX.

The energy commodity's reversal back into positive territory was driven by the market's shifting focus away from ballooning crude products and back to the dollar's battle royal against other international currencies. Typically, a weaker U.S. currency helps lift oil prices higher as investors are beckoned out of the greenback's safe haven and into riskier markets.

The market also took its cue to rally from higher-than-expected U.S. retail sales figures released Monday from the Commerce Department, which reported a 1.4% increase in spite of last month's grim consumer confidence and dismal unemployment rate.

"What a day for oil," commented Phil Flynn, vice president in charge of research for PFG Best in Chicago. "We really popped back up on that weak dollar, and the only time oil showed any weakness was when the manufacturing number out of New York came out worse than expected. But with gold hitting a record high, the copper market moving higher, and oil and gasoline joining the party, you couldn't keep the market down today."

OPEC Decision Could Put a Lid on $80-Oil

"Once again the dollar dominated the oil trade," noted Flynn, when reflecting on the primary driver in today's higher oil price.

"The Fed chairman today was talking about the dollar, but he didn't seem overly concerned about what the dollar had done and fed into the bullish psychology by basically repeating that the Fed is going to keep interest rates low for the foreseeable future, which has put more pressure on the dollar and consequently has moved up the price of oil again," the analyst said.

Meanwhile on the OPEC front, president Jose Botelho de Vasconcelos said that the oil cartel is still contemplating a decision to revise crude production levels when it meets in December, but that $75-$80 a barrel is still a good price for oil. OPEC's current compliance was placed in line with previous cuts at 65%.

"OPEC's comments and production have held back prices already," Flynn contended. "By talking about increasing production and by producing a little more oil, OPEC has tempered the rise in oil prices. If OPEC didn't signal to the market that they were interested in keeping oil prices where they are, then oil would be higher."

Natural Gas Moves Closer to $5-Threshold

After a choppy trading session on the NYMEX Monday, natural gas futures rebounded to $4.614 per thousand cubic feet, up more than 20 cents from last week's low of $4.30.

"Although some analysts say the rally was due to colder weather, and that may be part of it, I think it was hard for natural gas to stay lower with all of the other markets up today," Flynn said.

"Natural gas was vulnerable to some short covering because of the heavy selling last week," he added. "That short covering was exasperated by all of the other commodities trading higher, and so natural gas got caught up in the buying frenzy today," the analyst concluded.