Crude Futures Trade Lower Near $76 on Bearish Outlook

Down by more than $1 on bearish economic news, crude's spot price settled lower at nearly $76 on the New York Mercantile Exchange Tuesday during a flat, low volume trading session ahead of the Thanksgiving holiday.

Both weaker U.S. GDP figures and demand concerns sparked by a potential build in crude oil inventories helped spur investors away from heavy purchasing of the energy commodity.

Trending between a low of $75 and just under $78 today, the price of light, sweet crude oil for January delivery ultimately settled $1.54 less than Monday's final price tag at $76.02 a barrel. Conversely, natural gas futures continued to rally on the NYMEX Tuesday, closing .013 cents higher at $4.486 per thousand cubic feet.

Dollar Firms as Economic Fears Rattle Market

The U.S. Commerce Department reported Tuesday that the economy grew at a 2.8% annual rate, compared to the 3.5% pace estimated last month. Lowered GDP expectations, coupled with dismal consumer confidence and the dollar's strengthening against the euro today, all put pressure on commodity prices.

"Today's decline was mostly due to the weaker GDP numbers, although the revision came in close to expectations," said Bill O'Grady, chief markets strategist at St. Louis-based Confluence Investment Management LLC.

"There was a big downward revision in personal consumption," the analyst continued. "Most economists believe that if this recovery is going to gain momentum, there has to be an increase in consumption. At this point the recovery is mainly being driven by inventory restocking and government spending. If consumption remains down, it's going to be tough for the economy to strengthen, and I think that's what weighed on the market more than anything else today."

Market Sees Sign of Rising Inventories

A pickup in U.S. oil demand is directly hinged on the pace of the economic recovery. The current glut in inventories and slow demand doesn't bode well for the market's underlying supply-and-demand fundamentals, which may eventually catch up to crude prices. Additionally, many analysts have pointed out that a price contango in crude futures appears to be increasing, which suggests that there is a near-term surplus in inventories.

Ahead of the API and EIA inventory reports, a Reuters analyst survey forecasts an increase in crude oil stockpiles for last week, as well as a build in natural gas storage by 5 billion cubic feet.

Further inventory accumulation tends to lead to price weakness, however, as O'Grady noted, "oil prices have rebounded to a stronger trading range this year despite high inventory levels and continue to remain elevated." Traders are instead taking their cue from broader financial markets when purchasing commodities, and spot prices will more than likely hold in this higher trading range in the near term.