Commodities trading outlook: natural gas, crude oil futures

Both the US and European benchmarks retreated today, as expectations of growth in stockpiles overwhelmed fears over a sharp escalation of the crisis in Ukraine. Meanwhile, natural gas made sizable gains during afternoon trade, but the rise was soon partially reversed. Weather reports confirmed there will be active weather over the US in the following weeks, stirring the market.

On the New York Mercantile Exchange West Texas Intermediate futures for settlement In June traded at $102.49 per barrel at 13:09 GMT, losing 1.12% to yesterdays close, offsetting last sessions gain of 0.27%. Daily high and low were at $103.65 and $102.36 respectively.

Meanwhile on the ICE, Brent futures for June delivery registered a 0.57% drop from last sessions close to trade at $109.32 per barrel at 13:09 GMT, erasing yesterdays gain of 0.38%. Today the highest and lowest price were at $109.99 and $109.21 respectively. The European benchmark traded at a premium of $6.83 to its US counterpart, widening yesterdays closing prices gap of $6.50.

The crisis in Ukraine remains the foremost factor in supporting relatively high crude oil prices, as tensions remain highly strained with both the pro-Russian separatists and the central government seemingly not implementing the agreed-upon measures in Geneva last Thursday. The four-way peace talks resulted in a deal to disarm all armed groups in Ukraine, including both the pro-Russian separatists and the ultra-nationalist Right Sector, and the discontinuation of occupation of government buildings by the militants.

Russian exterior minister Sergei Lavrov accused the interim government of inciting the violence: “All signs show that Kiev can’t, or doesn’t want to, control the extremists,” he said, in context of the fatal shooting that took place at a separatist-controlled checkpoint near Sloviansk on Sunday – two days after the Geneva meeting. At the same time, occupation of buildings in the eastern regions of the country continues, as militants refuse to recognize the government’s legitimacy.

Meanwhile, US vice-president Joe Biden is landing in Ukraine today for a 2-day visit, set to underscore American support for the government and to offer assistance in the economic and energy distribution sectors.

US crude oil stockpiles

Two separate oil inventories reports are due: one today – by the American Petroleum Institute – a private body, and the other – tomorrow – by the Energy Information Administration. A Bloomberg survey median forecasts that crude supplies may have risen by 3 million barrels in the week through April 18th, pushing down on prices, while gasoline stockpiles are said to have fallen by nearly 1.9 million barrels, capping any major shift downwards. Distillate fuel inventories, which include diesel and heating oil, likely dropped by 300 000 barrels.

Last week US crude oil supplies jumped by 10.0 million barrels to 394.1 million, sharply exceeding the median estimate of analysts surveyed by Bloomberg for a moderate 1.75-million-barrel jump. This was the steepest build up in more than ten years, while gasoline decreased by only 0.15 million barrels, though the EIA reported that gasoline consumption was at the highest level since January.

Natural Gas

Natural gas futures due in June reversed earlier losses to trade at at $4.729 per million British thermal units at 13:18 GMT on the New York Mercantile Exchange, up 0.30% on the day. Prices held in a daily range between $4.754 per mBtu and $4.695. Thursday saw a major boost for natural gas, as reports of faltering natural gas replenishment in the US sparked positive sentiment and lifted futures more than 4.5%. Yesterday prices rebounded, however, to settle for a drop of 0.93%.

A major shift in the market took place on Thursday, as natural gas rallied on a bullish EIA storage report signifying better-than-expected demand. The government agency reported that US natural gas inventories rose by 24 billion cubic feet in the seven days through April 11th, compared to analysts’ forecasts for a 34-bcf jump. Total gas held in US underground storage hubs amounted to 850 billion cubic feet, 50% below last year’s 1 700-bcf supplies level during the comparable week. The deficit to the five-year average storage narrowed to 54.3% from 54.7% in the previous week, retreating from an 11-year low.

In other news, weather across the US will remain very active throughout the following weeks. NatGasWeather.com reported that midweek the US will see cooling as cold-air systems above the Plains track out. Cooling will be brief, though, as more high-pressure builds-up will warm up the central and eastern US, and highly active weather continues to slightly curb demand in both directions of the average.

More impressive cold-blasts are expected into the weekend and through the next week though, with the Great Lakes and the Northeast area experiencing higher-than-normal demand for heating. In the coming weeks, NatGasWeather.com expects very active weather as spring storms and high-pressure build-ups swing temperatures back and forth, inducing demand ranging from moderate-to-high in the Ohio valley, to low-to-moderate in the warmer South and Plains.

According to AccuWeather.com, readings in New York for today – April 22nd, will drop no lower than 47 degrees Fahrenheit – on-level with the average, while tomorrow temperatures will fall to 40 degrees. Further north on the East Coast, Boston will see moderately higher-than-average temps today, falling no lower than 47 degrees Fahrenheit, before cooling tomorrow to 41 degrees. Inland, the Midwest is set for a colder-than-usual day on the 22nd, with Chicago readings expected to reach as low as 35 degrees – well-below the average for this time of the year. Over the next two days, however, a significant warm-up is expected, amounting to as much as a 12 degree-rise in temperatures.