Commodities trading outlook: crude oil and natural gas futures

Crude oil futures gained today, as the crisis in Ukraine added to risk premium. Separatists declared victory in the independence referendum and plan to hold a vote on joining the Russian Federation in a weeks time. Meanwhile, natural gas futures traded lower, as growing supplies in top consumer US pressure the blue fuel.

West Texas Intermediate futures for delivery in June traded for $100.79 per barrel at 13:30 GMT on the New York Mercantile Exchange, adding 0.80%, daily prices between $99.93 and $100.88 per barrel. On Friday the contract closed for a weekly gain of 0.24%, after a bullish report on US stockpiles.

Meanwhile on the ICE in London, the rollover to July futures is expanding, as the June contract expires on Wednesday. Brent futures for settlement in July recorded a 0.64% gain to trade for $107.97 per barrel at 13:21 GMT, prices ranging from $107.25 to $108.17 per barrel. Brent’s premium to WTI July contracts stood at $7.85. The European brands July future added 0.15% over the last four sessions.

Separatists in Donetsk region in Eastern Ukraine have declared victory in the independence referendum, which took place on Sunday. They reported that 89% of voters backed self-rule, and said turnout was at 75%. Luhansk reported 96% of voters agree with self-rule.

Ukraine and the West have condemned the vote. The EU has expanded sanctions to include 2 more companies and 13 additional individuals, the names of which should be announced within 24 hours, the BBC reported. Moscow said it “respected the will of the people,” and that the results should be implemented.

Organizers said that all government troops will be considered “occupying forces”. Furthermore, the separatists plan to hold another vote in a week’s time on whether to join the Russian Federation, much like the Crimea did earlier this year.

Earlier, Russia celebrated 69 years since the victory over Nazi Germany on Friday. Russian President Vladimir Putin flew to the Crimea to attend the parade in Sevastopol. The move was widely condemned by the West and in Ukraine, calling it “regretful”, “inappropriate”, “provocative and unnecessary” and a “gross violation of Ukraine’s sovereignty”.

Outlook

Tomorrow the private American Petroleum Institute will release its weekly report on oil inventories in the US. The report is seen as an indication for official data on Wednesday.

Last week commercial crude oil supplies stood at 397.6 million barrels, registering a decline of 1.781 million barrels. Motor gasoline supplies added 1.608 million barrels, while distillates inventories contracted by 0.447 million barrels.

US retail sales for April are also to be reported on Tuesday, and are forecast to have added 0.4%, down from an upward-revised 1.2% growth for March, while core retail sales are expected to show a 0.6% growth after 0.7% the previous month.

Later in the week reports on industrial activities in the EU for March, as well as Fed’s May manufacturing indices for New York and Philadelphia are expected. Also, CPI for April in the US will be revealed, which is a major indicator for the economy, which consumes about 21% of the world oil supply.

Elsewhere, a report on industrial production for April in China is projected to show the sector has grown by 8.7-8.9% on an annual basis, in line with the figure from last year of 8.8%. China consumes about 11% of the oil in the world.

Iran is also in focus, as negotiations between Tehran and six world powers over the nuclear capabilities of the country will continue this week in Vienna, after they had given “useful” results last week. Sanctions limit Iran’s oil exports, and a possible breakthrough could result in a surge of fresh oil supplies in the markets, which would push down on prices.

Meanwhile, OPEC Secretary General Abdalla El-Badri said the group plans to maintain its current production rate at 30 million barrels daily in the near term. However, Saudi Oil Minister Ali al-Naimi said both Saudi Arabia and OPEC will step in to cover any shortages due to the crisis in Ukraine.

Natural gas futures

Front month natural gas futures, due in June, lost 1.41% at the New York Mercantile Exchange to trade for $4.467 per million British thermal units at 13:34 GMT. Prices ranged from $4.463 to $4.549 per mBtu. Over the previous four sessions the contract lost 6.82% after reaching the highest price since winter on Tuesday, pressured by increasing supplies and warming weather.

The weather over the Midwest will be cooling over the next few days, with a storm system moving in from the West. The possibility of tornadoes and heavy rains is quite real for the day, before diminishing tomorrow. Down South it will be warm and humid, with some possibility of local and unimpressive thunderstorms and rains through to Friday. The Northeast will be dry and warm today, with rare local showers, before a cooling down to normal range for the rest of the week. Over the Rockies, the West Coast is set for a hot week, with the highs pushing three digit readings on Wednesday and Thursday.

The weather in New York will be nice and warm today, with temperature highs about 83-84 degrees Fahrenheit and lows at 64, 10 degrees above average. However, readings will drop 10-15 degrees over the next two days, before they normalize on Thursday and Friday, though some thunderstorms are expected then, which could lower the highs. The Boston area will be several degrees warmer than usual today, with highs in the 80s. Similar to New York, Boston will experience a severe cooling tomorrow, with temperatures dropping 15 degrees, before entering normal range later in the week. Again, thunderstorms and rains are to be expected starting Thursday. A strong thunderstorm is forecast for Chicago today, though temps of 63-80 will be significantly higher than the average for the day. Starting tomorrow readings will drop and remain several degrees below normal through the end of the week. Los Angeles is preparing for another heatwave starting today, with temperatures expected to reach as high as 89 today, before pushing triple digits on Wednesday and Thursday. Starting over the weekend, readings will lower to be normal beginning next week.

US inventories

The energy source was also pressured in the second half of last week after government data showed natural gas in storage in the US added 74 billion cubic feet for the week ended May 2nd, exceeding forecasts of a 71 bcf gain, to reach a total of 1 055 bcf. The increase is smaller than that of the previous week, which stood at 82 billion cubic feet. The slight slowdown is attributed to cooler weather over the East and a heatwave on the West Coast during the viewed period.

Inventories are still well below figures from previous years, after a harsh winter drained supplies. Currently they stand 43.0% short of last year’s reading for the regarded week, and 48.2% below the 5-year average.