Commodities trading outlook: crude oil and natural gas futures

The weekly Energy Information Administration (EIA) report on oil inventories in the US revealed crude stocks had declined, supporting West Texas Intermediate. Previously, the US brand saw further support by reports of a strengthening US economy, though bearish data from China pared significant gains. Meanwhile, natural gas contracts dropped today, as warmer weather sets-in over much of the US. Government data on blue fuel supplies is due tomorrow.

West Texas Intermediate futures for delivery in June traded for $100.52 per barrel at 14:53 GMT on the New York Mercantile Exchange, adding 1.03%, daily prices between $99.78 and $100.60 per barrel. On Tuesday the US benchmark closed on-par with the previous close after a 0.28% loss on Monday.

US oil supplies

The government report on US oil inventories for the week ended May 2nd revealed stockpiles of crude oil had backed-off from all-time high figures for the last two weeks. Supplies stood at 397.6 million barrels, registering a decline of 1.781 million barrels. The decrease contrasts expectations of a 1.2-1.4 million barrel increase, though its in-line with the private API report from Tuesday. Domestic production for the week remained virtually unchanged at 8.350 million barrels per day, while imports stood at 6.814 million barrels daily, down from last weeks 7.412 mbd.

Motor gasoline supplies added 1.608 million barrels, exceeding forecasts of 0.017 million barrel increase, while distillates inventories contracted by 0.447 million barrels, far-below a projected 0.933 million barrel rise. Refinery utilization rate dropped to 90.2%, after recording 91.0 % for the previous two weeks. Gasoline production picked-up pace to settle at 8.992 million barrels daily, up from last weeks 8.623 million barrels per day, while distillates also add to reach 5.039 million barrels daily, up from 4.914 mbd the previous week.

Crude oil in storage at Cushing, the delivery point for WTI, fell by million barrels to 24.0, down from last weeks 25.4 million barrels. Hubs at the Gulf Coast slightly decreased inventories to register 213.4 million barrels for the week.

The oil market was supported by positive economic data by the US. Exports for March registered the second-highest level on record, a report on Tuesday revealed, with automobiles and aircraft standing strong. Last week data on much-improving employment, consumer spending and factory activity facilitated confidence in the US, which consume 21% of the oil in the world.

Elsewhere, HSBC’s final reading for April’s manufacturing PMI of China put the figure at 48.1, marking the fourth month in a row to register a contraction in factory activity. The reading is also behind the preliminary standing at 48.3, and below the government’s 50.3 index, which also fell short of expectations.

China accounts for 11% of the world’s oil consumption, and negative industrial outlooks pressure crude contracts. Further still, traders began calculating the probability of an upcoming stimulus program by the government, which would increase the price of importing oil, further reducing its investment appeal.

Ukraine

The conflict in Eastern Europe continues to support oil prices, as fears over a Russian intervention project into a higher risk premium. The Ukrainian government’s so-called “anti-terrorist” operation, taking place around the pro-Russian stronghold of Sloviansk, resulted in a bloody battle. Kiev reported at least four government soldiers were killed and about 30 injured, and a helicopter downed. The authorities also reported the deaths of at least 30 rebels.

Earlier today, pro-Russian separatists in Donetsk have proclaimed a “People’s Republic” and are preparing an independence referendum on Sunday, the BBC reported. US Secretary of State John Kerry said the US reject the “illegal effort to further divide Ukraine.”

The town hall of Mariupol was captured by government’s troops earlier today, only to be seized by separatists again later in the day. There confrontation seems to have moved to the police station. A reported 16 detainees, including the defense minister of the separatist Donetsk People’s Republic, Igor Kakidzyanov. were brought there after city hall was captured by security forces earlier. A pro-Russian mob seeks to block their relocation, the BBC reported, and forces had fired warning shots in the air.

Elsewhere, Russian Foreign Minister Sergei Lavrov dismissed the possibility of more peace talks, if the format remained the same. He demanded the pro-Russian opposition in Ukraine have representatives, or else “…[the West, Kiev and Moscow] would just go round in circles.” He added that Ukraine should postpone the presidential election scheduled for May 25th, amid the escalating conflict.

Natural gas futures

Front month natural gas futures, due in June, lost 0.35% at the new York Mercantile Exchange, to trade for $4.782 per million British thermal units at 14:59 GMT. Prices ranged from $4.760 to $4.827 per mBtu. The contract added 2.37% on Tuesday.

Natgasweather.com reported that the high-pressure system over the Plains will move eastward over the following days, warming much of the mid-Atlantic and southern states, as well as portions of the Northeast and Midwest. Meanwhile, a weather system over the Rockies is also set to move eastward, bringing unsettled weather for the central US. Later in the week, somewhat cooler blasts from Canada will cross south, to lower temperatures, but not by much. Overall, expectations suggest warmer-than-average weather over much of the Midwest and Northeast, as well as the South, lowering heating demand.

According to Accuweather.com today in New York temperatures will be normal, with high and low at 68 and 51 degrees Fahrenheit, respectively. Tomorrow and Friday will be slightly cooler, before a nice and strong warm-up in the weekend, when readings will exceed the average by 6-7 degrees. Chicago is set for a period of warming, with readings pushing 75-79 over the next few days, 7-9 degrees above normal. On the West Coast, Los Angeles will remain slightly cooler than normal for this time of year after record-high temperatures last week. The next three days, and into the weekend, readings will be 2-3 degrees below the average, before a warm-up in the weekend and into next week.

Tomorrow the report on natural gas stockpiles in the US for the week ended May 2nd is due, and last week’s cooler weather over the East and heatwave over the West are expected to have impacted gains.

Last week’s report revealed natural gas in storage hubs in the US recorded a gain of 82 billion cubic feet to stand at 981 bcf for the week ended April 25th.

Inventories are still recovering after an extremely cold winter drained supplies. With last weeks major gains, they stand at 44.1% below the figure from last year, and 50.1% under the 5-year average.