Oil Rings in the New Year, Settles at $79

As the year drew to a close, crude oil reached for the $80 mark, but fell short as the market closed its doors. Putting together a nice rebound from the 2008 price collapse that carried into 1Q2009, 2009 will be hailed as one of the strongest years for crude oil since 1973 on a percentage gain basis. Crude oil ends the year with a gain of more than 75% compared to this time last year, but the price of the hydrocarbon still remains about 45% below the 2008 high. Natural gas, on the other hand finishes 2009 about flat with year ago levels.

Settling at a price of $79.36, light, sweet crude oil for February delivery gained momentum from yesterday's closing price. On the other hand, natural gas prices took a modest step down on the last day of the decade, as the front month contract settled at $5.57 per thousand cubic feet for the day.

"We will see price fluctuation in 2010," states Darin Newsom, senior analyst with DTN. "Over the next four to six weeks, we can see crude oil prices come down, maybe hit the $50 mark, but then we will see a seasonal turn," he added. As the preseason buying of expected gasoline demand occurs in mid to late February, the price of oil could reach a new threshold, sparking a light to the crude oil market. If that occurs, Newsom predicts oil will break loose from the stagnant $70 to $80 range.

Dollar Overtakes Supply and Demand Fundamentals

For both the crude and natural gas markets, the dollar has played a significant role in trading activity in 2009. Supply and demand took a back seat as oil traders were forced to focus on the intricacies of currency exchange rates and global macroeconomics and the relationships therein, observed Phil Flynn, vice president at futures trading firm PFG Best.

It is predicted that in the first quarter of 2010, the price of crude oil will still be driven by outside forces, but supply and demand could resume a more significant role by the second quarter. Oil prices could then be more fundamentally driven and more aligned with supply and demand.

Natural Gas Sets Its Sights on 2010

Natural gas has sparked a renewed interest among buyers that isn't necessarily tied to fundamentals or strengthening demand in the traditional markets. "Natural gas could play a significant role as an alternative fuel source in the new year," added Newsom. "I think it will break away from some of the other energies and play a very important role in the market."