A stronger dollar helped push oil prices lower, settling the price of crude oil at $80.50 a barrel on the New York Mercantile Exchange Friday, or a decline of 69 cents from Thursday's closing price. Furthermore, natural gas settled at $4.787, falling 16 cents lower than the previous days record high of $4.947 per thousand cubic feet on the NYMEX.
Oil prices had risen to a one-year high of $82 Wednesday, after rallying more than 10% in a week. The high oil price correlated to the weakening dollar, which reached a 14-month low, comparable to a basket of other currencies during the week.
Earlier in the day, crude did not reach yesterday's closing price and even slipped below the $80 mark, but slowly rallied above the threshold as the dollar strengthened. Additionally, the S&P stock index fell more than a percentage, making investors question whether the economy will recover anytime soon.
"It is still a bull market for commodities, but the bullish has to do with fear of the dollar, fear of inflation, and less to do with supply and consumption," commented Bill O'Grady, the chief markets strategist at Confluence Investment Management LLC, an investment advisory and management firm.
Drop in Equities Weighs on Crude Market
"Frankly, the price dropped today due to other markets," stated O'Grady. "The drop in equities really has a lot more to do with global markets; commodity markets have been positively correlated to equity markets, really throughout this whole recovery."
Rumors are floating that OPEC is considering raising production when it meets in December. However, OPEC put conditions on raising their production: the price has to stay in the same price range and inventories have to go down. "Inventories aren't going down," says O'Grady. "My hunch is that the price will stay in the $75 to $85 range for a while. However, it will be tough to get it to go over $85 because OPEC has made enough noise expressing concern about the current price."
"Unless there is a major break in stocks or a major lift in the dollar, we probably won't see it reach above the $85 mark," continued O'Grady. "I wouldn't be all that surprised to see a retest of the $75 mark," he added
Natural Gas Slips Further
The price of natural gas closed at $4.787 on the NYMEX Friday, falling 19 cents from yesterday's closing price. As the winter months approach, the price of natural gas is expected to stay right below or on the $5-point mark.
"We are hitting the moment where the temperature really matters on price and what we have seen so far has been supportive," the analyst stated. "We have come a long way so far, prices were below $3 not too long ago, and now we are hitting prices we haven't seen in quite some time. This has been a pretty impressive recovery."
