Dollar's Six-Week High Pares Off Oil's Earlier Gains

Exiting a bout of choppy trading on the New York Mercantile Exchange on Monday, crude oil futures eased toward $72 as a stronger greenback erased earlier gains spurred by colder winter weather and geopolitical tensions.

After cresting an intra-day high of more than $74, the price of light, sweet crude oil for January delivery -- the front-month contract of which is set to expire today -- settled nearly 90 cents less than Friday's final price tag to $72.47 a barrel. Likewise, the February contract closed down 70 cents to $73.72 a barrel for the day.

Also recording a slight loss on the NYMEX on Monday, Natural gas spot prices at the Henry Hub fell to $5.669 per thousand cubic feet -- still a "bullish" price for the energy commodity due to an uptick in seasonal demand blown in on a blast of icy weather heading into the new year.

Market Moves on Pre-Holiday Volatility, Profit-Taking

Moving to the quiet beat of pre-holiday trading, U.S. currency holders ultimately tightened their purse strings during the end of a volatile trading session for both oil and natural gas, driven by a spike in the dollar's safe-haven appeal.

Given a recent impetus by a more buoyant economic recovery, the greenback firmed to a six-week high against the euro and yen currencies led by comments out of the Federal Reserve that interest rates may increase in early 2010.

"The dollar strengthened today, which probably took the luster off of commodities in general, and crude in particular," commented Bill O'Grady, the chief markets strategist at St. Louis-based Confluence Investment Management, LLC. "You may also be getting some position squaring in front of year-end -- with volumes starting to dry up as we approach Christmas, traders are probably cashing in their chips and extending their holiday."

Geopolitcal Tensions Ease

Additionally, several geopolitical factors -- ranging from pipeline attacks in Iraq and Nigeria to OPEC's imminent meeting in Angola -- underscored this morning's rally in oil prices as market participants responded to a potential crisis and supply shortage with earlier short-covering for the energy commodity.

Specifically, Iraqi exports from the Turkish port of Ceyhan were halted over the weekend due to sabotage on the northern pipeline, a newswire out of Dow Jones noted. Nigeria's predominant militant group also claimed responsibility for an attack on Royal Dutch Shell's oil pipeline in Abonemma on Saturday, according to Reuters. This unfortunate, yet ubiquitous event in Nigeria's oil hub has caused Shell to consider selling its onshore Nigerian oil-production assets, the oil major announced today. 

However, concern eventually ebbed on the crisis-front as news surfaced that Iranian troops withdrew from an occupied Iraqi oil well in a disputed area on the two countries' borders. Furthermore, with still-bloated inventory levels on both the domestic and international front, OPEC's production quotas will likely remain unchanged, with greater compliance from the cartel's members emphasized as a result of the meeting instead of additional cuts.