Crude Settles Above $77, Natural Gas Picks Up Last Week's Rally

Coming out of the weekend investors engaged in choppy trading on the New York Mercantile Exchange Monday with positive trading for crude oil spurred by a weakened U.S. dollar and a rally in gold, another NYMEX commodity that has seen heavy purchasing lately as an additional hedge against inflation.

Rolling into the January 2010 contract, the price of light, sweet crude oil ended higher on the NYMEX today at $77.56, or a gain of .09 cents from Friday's same contract closing price. During earlier trading, oil prices hovered just under the $80-threshold in their current trading range, but the more-than-$2 gain could not hold as market participants were reminded that oil's underlying supply-and-demand fundamentals are still burdened by an inventory surplus and tepid demand.

"The market keeps running its head up against $80 and falling back, and I don't look for much to change this week," said Darin Newsom, senior analyst with DTN, a market information service in Omaha, Nebraska.

He continued, "Today crude oil just couldn't hold near its highs, and the biggest reason why is that we're heading into a holiday weekend, and trade got a little thin after that opening burst without any follow-through buying."

Additionally, natural gas futures under the December contract continued a positive movement on the NYMEX Monday, closing at $4.473 per thousand cubic feet, or a gain of .049 cents from Friday's final price tag.

Same Story Under New Spot Contract

In recent months, commodity prices have risen and fallen in a continuous cycle based on broader financial criteria, such as stock-market performance and the greenback's value.

Newsom underscored this: "Basically almost all of these commodities have come down to what direction is the dollar going and what's the outlook for the Dow? There hasn't been a lot of change in these markets as far as what's driving them," Newsom reiterated.

Echoing other analysts in weeks past, Newsom pointed out that the biggest news for the crude oil market today had to do with the dollar's sharp decline in value against a basket of foreign currencies.

Most analysts agree that commodity investors will continue to follow this financial factor to gage whether or not to purchase commodities as inflationary safeguards in the near term. Narrowed down to the crude market, until oil demand can accelerate along with the economic recovery, the energy commodity's main influence will be the top consumer's top dollar.

"Yes, the dollar was weaker today and that sparked the early rally, but overall, fundamentals are still bearish,"Newsom reminded. "However, crude oil just doesn't seem tied to its fundamentals at this point," he added.

"We're looking at the Jan.-Feb. spread moving out almost a dollar today -- a dollar contango -- and this certainly indicates that we are not at all in a supply crunch. The higher the market moves (and it's still limited by $80), the more pressure that is ultimately going to come from the fundamentals. In other words, the sell-off could really be sharp once it starts to happen," Newsom warned.