Pressured by Firm Dollar, Crude Tests $75

Unable to sever ties with broader financial movements, U.S. crude oil futures failed to rally on the New York Mercantile Exchange Friday as a firmer greenback put pressure on the dollar-denominated energy commodity.

Ultimately, the price of light, sweet crude oil tumbled nearly a $1 less than yesterday's final price tag on the NYMEX, landing at the bottom of its current trading range at $75.47 a barrel. Heading in the opposite direction of its energy counterpart, natural gas spot prices at the Henry Hub rose to $4.586 per thousand cubic feet.

"Crude oil closed lower -- no real surprise there," commented Darin Newsom, senior analyst with DTN, a market information service in Omaha, Nebraska.

He continued, "We had the unemployment numbers out first thing this morning -- unemployment dropped to 10% -- and the initial reaction of the crude oil market was to rally on the idea that because the economy is showing signs of improvement, people are going to be driving more. But then, reality set in."

The underlying reality of the crude oil market is, of course, that fundamentals are "still bearish and growing even more bearish as shown by the action in the spreads today," according to Newsom.

Underscored by recent EIA data reports, domestic gasoline stocks rose last week and a fourth injection into the U.S.'s burgeoning natural gas supplies indicates that near term energy prices are instead reflecting accelerated commercial buying as a hedge against inflation.

Will Dollar's Rise Push Crude Under Current Range?

Punctuating crude's downward movement today, the dollar gained against a basket of major currencies led by encouraging jobs data out of the U.S., which nipped an earlier rally in the bud. Whether the rise in the U.S. currency's index will sustain itself next week remains to be seen.

"With the strength of the dollar we saw energy markets come down. Fundamentally, crude oil remains overpriced. We've got the contango going out at around $1.80 and continuing to widen, which reflects a more bearish supply-and-demand sitution. Therefore, if the speculative side of the market reacts on the idea that inflation isn't going to come, the dollar's going to rally and interests rates are going to go up, they start backing out of commodities and looking for other investment opportunities," Newsom explained.

"Then the market has nothing to come back to with fundamentals as they currently stand, which could lead to a sizeable sell off if this chain of events occurs."