Commodities trading outlook: crude oil and natural gas futures

Both West Texas Intermediate and Brent futures declined on Wednesday, as the US governments report on stockpiles pressured both contracts. Meanwhile, natural gas futures dropped during early trading in Europe today, after reaching the highest price since winter on Tuesday.

West Texas Intermediate futures for delivery in June traded for $99.80 per barrel at 14:57 GMT on the New York Mercantile Exchange, dropping 1.46%. The session registered the lowest price in almost a month at $99.41 per barrel. Yesterday the US crude benchmark gained 0.44%.

Meanwhile on the ICE in London, Brent futures for settlement in June recorded a 0.97% loss to trade for $107.92 per barrel at 14:57 GMT, prices ranging from $107.82 to $108.80 per barrel. Brent’s premium to WTI stood at $8.12. Tuesday’s session added 0.80% to the contract on tightening sanctions on Russia, while Monday saw prices fall to near a 2-week low of 107.86, registering the biggest drop in almost a month, after news from Libya.

The government report on US oil inventories for the week ended April 25th revealed stockpiles of crude oil were at the all-time-high of 399.4 million barrels, registering a growth of 1.698 million barrels, though falling short of expectations. Domestic production recorded insignificant drops and averaged 8.352 million barrels per day, while imports stood at 7.412 mbd, down from last weeks 7.729 million barrels daily.

Motor gasoline supplies have increased by 1.564 million barrels, thrashing expectations of a 0.6 million barrels decrease, while distillates gains were at 1.936 million barrels, well-ahead of a projected 0.583 million barrel rise. The increase in refined products comes in-line with higher than usual for the season refinery utilization rate, which stood at 91.0% for a second week. Gasoline production picked-up pace to settle at 8.693 million barrels per day, while distillates remain at 4.9 million barrels daily.

Crude in storage at Cushing, the delivery point for WTI, fell by 0.6 million barrels to 25.4 million barrels. Hubs at the Gulf Coast, contrary to expectations, also recorded drops of 5.7 million barrels.

Ukraine

The looming threats over the crisis in Ukraine continue to be the mainstay of support for crude oil. In response to fresh US and EU sanctions, Russian President Vladimir Putin said: “If this continues, we will of course have to think about how (foreign companies) work in the Russian Federation, including in key sectors of the Russian economy such as energy.”

In Ukraine itself the conflict is growing. A number of government buildings were captured by militants in eastern Ukraine on Tuesday, prompting US Secretary of State John Kerry to accuse the Kremlin of escalating the conflict. Still, as many as 40 people, including journalists, international observers, Ukrainian military personnel and pro-western activists, are held hostage in the town of Sloviansk.

BBC analyst David Stern said the pro-Russian militants may be trying to incite a full-blown crackdown by the authorities, in an attempt to provoke an intervention by Moscow. The Kremlin denied there being any Russian personnel in Ukraine, and dismissed the possibility of invading its eastern neighbor. NATO, however, said it had no information that indicates a withdrawal of Russian troops from the Ukrainian border.

Acting President Olexander Turchinov said Ukrainian forces were on full combat alert, as Russian troops are still amassed near the frontier. He also admitted the authorities were unable to suppress the turmoil in the eastern regions, and are now aiming to contain the discontent. “Our task is to stop the spread of the terrorist threat first of all in the Kharkiv and Odessa regions,” he said.

Previously, news that Libya is lifting force majeure off of the eastern Zueitina oil exporting harbor pressured crude on Monday, with the European benchmark posting the biggest daily drop since early April. Libya’s crude oil exports sank to 250 000 barrels daily, from 1.4 million a year ago, since rebels took control of four eastern ports last year.

Natural gas

Front month natural gas futures, due in June, lost 1.41% at the new York Mercantile Exchange, to trade for $4.763 per million British thermal units at 15:00 GMT. Prices ranged from $4.751 to $4.843 per mBtu. Yesterday the contract added 0.67%, reaching the highest midday price since winter at $4.848 per mBtu, while Monday’s session closed for a 3.03% gain on cooler weather over the US.

Natgasweather.com informed that the strong Spring storm over the US will continue battering the eastern and southern states with thunderstorms and rains, as it slowly moves eastward. In the following days cool air from Canada will set the stage for increasing heating demand over much of the central, southern and eastern US. Starting next week, a build-up of high-pressure over the Southern Plains will collide with the much colder Canadian system to produce powerful storms and a very unsettled weather over much of the US. In contrast, the Pacific Coast is in the grip of a strong heatwave, which will last until next week when readings will normalize.

According to Accuweather.com, April 30th will be colder than usual for New York, as temperatures will not vary much from 50 degrees Fahrenheit, 8-9 degrees below the average for this time of the year. Thursday is set for a considerable warm-up, though a thunderstorm might bring readings down, before they normalize for the weekend. Chicago will measure 40 to 55 degrees today, 7-8 below the average. The cooler weather will persist through the end of this week and into the next, with below-average readings. Los Angeles will be pushing all-time-high readings today and tomorrow, temperatures topping 90 degrees in the early afternoon. Beginning on Friday the weather will begin to slowly normalize to enter average range next week.

Natural gas stockpiles in the US grew by 49 billion cubic feet last week, beating forecasts of a 44 bcf gain, and pushing down on the blue fuel. Thursday will see the report for the week ended April 25th, and expectations are the colder weather over most of the US has made possible only modest gains, if any.