Natural Gas Futures Take Reins as Crude Steadies Above $70

Unable to shake off macroeconomic worries on both the global and domestic front, U.S. crude oil futures were pushed into negative territory during volatile trading on the New York Mercantile Exchange Thursday, predominantly influenced by concerns over ample fuel supplies.

Stubbornly resisting to break back into last month's trading range between $75-$80, the price of light, sweet crude oil for January delivery suffered a slight loss today, ultimately settling at $70.54 a barrel.

Oil prices have continued to slide for seven consecutive sessions on trend with the market's more bearish outlook concerning underlying supply-and-demand fundamentals.

Interestingly, purchasing of the energy commodity has not gained technical support this week from a weakening greenback. Typically, oil prices are lifted, along with other dollar-denominated commodities, when the U.S. currency loses its safe-haven demand.

Today, the U.S. dollar extended its losses against the euro following a U.S. trade deficit report and data on jobless benefit claims. Wall Street, however, made positive gains on both reports since a narrower deficit and lower continuing jobless claims bode well for a recovering economy.

Saudi Arabia Seeps More Oil into Asian Market

"For the first time in two months we went below $70 a barrel," noted Phil Flynn, vice president in charge of research for PFG Best in Chicago. "However, we didn't close below $70, which might mean that the market may attempt another run back up [in oil prices]."

"What we really saw today was the realization that supplies are really high," the analyst continued. "We saw a report out of Saudi Arabia that they are raising production, which added to the bearish sentiment. Oil was just weak today on the demand side of the equation."

Specifically, Saudi Arabia announced Thursday that it would restore full oil supplies to at least two Asia buyers at the beginning of next year, but would steady volumes to seven other recipients, Reuters reported.

"If we look at yesterday's inventory report," Flynn continued, " we saw that supplies were above the 5-year average in basically every category, but especially in distillates. We're almost 24.7% above the 5-year average, and it's hard to get really bullish in that type of environment unless there's something else driving the market."

Natural Gas Rallies on Surprise Drawdown

Conversely, natural gas spot prices at the Henry Hub broke new ground on the NYMEX today, soaring 40 cents higher during its trading session to close at $5.298 per thousand cubic feet.

"Natural gas exploded today due to a couple of factors," Flynn said. "But what really got the market moving today was the fact that the withdrawal from natural gas supplies was a lot more substantial than analysts were predicting. Natural gas inventories fell by 64 billion cubic feet compared to an anticipated drop of 45 Bcf, and last week wasn't even that cold."

According to the EIA's Weekly Natural Gas Storage Report, working natural gas in storage fell 64 Bcf to 3,773 Bcf the week ending Friday, December 4. Additionally, natural gas spot prices have increased at all trading locations in the lower 48 States since last Wednesday, Dec. 2, the report noted.

"I think the market is pricing in even higher on the expectation that we'll see an even bigger withdrawal next week," the analyst concluded.