Commodities trading outlook: crude oil and natural gas futures

WTI and Brent futures gained ahead of the longer US weekend. Falling US supplies are still the major force supporting crude contracts. Improving sentiment for China and the EU, alongside mixed economic data from the US were unable to further elevate oil, after it reached “preposterously high” levels. Meanwhile, natural gas futures were set for another weekly loss, after US natgas stockpiles reportedly gained 106 billion cubic feet, exceeding expectations and recording the highest injection since last June.

West Texas Intermediate futures for settlement in July traded for $104.15 per barrel at 13:07 GMT on the New York Mercantile Exchange, up 0.40%. Prices ranged from $103.64 to $104.23 per barrel. Yesterday the US benchmark declined by 0.32%. So far this week, the contract has added 2.12%, reaching a monthly high of $104.29 per barrel on Wednesday in light of falling crude supplies in the US.

Meanwhile on the ICE in London, Brent futures due in July recorded a 0.19% gain to trade for $110.57 per barrel at 12:58 GMT. Daily high and low stood at $110.65 and $110.25 per barrel, respectively. Brent’s premium to WTI stood at $6.42, narrowing Thursday’s closing margin of $6.62. Yesterday the European brand lost 0.17%, and for the past four sessions the contract has gained 0.55%, reaching an 11-week high of $110.73 per barrel on Wednesday.

The weekly Energy Information Administration report, released on Wednesday, revealed that crude oil stockpiled in the US had dropped by almost 8 million barrels in the week ended May 16. The decline was due, primarily, to a sharp decrease in imports, which fell by almost 0.7 million barrels per day (bpd). Oil at Cushing was also drawn to stand at 23.2 million barrels. Previously, commercial reserves of crude oil in the US were pushing record-high readings for the past two months, and they still remain in the vicinity of historic highs.

“I find $104 WTI a bit preposterous given how ample supplies are but I wouldn’t recommend standing in the way of this,” said for Bloomberg Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “There’s still ample crude.”

Gasoline supplies added 0.970 million barrels, amid a 14 000 bpd decline in domestic production and a 120 000 bpd growth in imports. Distillates inventories grew by 3.4 million in light of increasing production and more imports.

“The inventory draw is the key factor for oil this week,” said for Bloomberg Michael McCarthy, chief strategist at CMC Markets in Sydney. “There’s an anticipation of further increased demand as we head into the driving season during summer in the US.”

US economic data was mixed this week. Jobless claims were more than expected, though manufacturing PMI for May grew to record a 56.2 preliminary standing. Existing home sales also added, but less than expected. New home sales will be reported later today.

The EU also logged economic readings on Thursday, fore a generally improving outlook. Manufacturing PMI for May was projected at 52.5, below the expected 53.2 and trailing April’s 53.4 figure. The reading still means an expansion is taking place for factories in the EU, but at a slower pace. Services PMI was put at 53.5, above the forecast 53.0 and gaining on April’s 53.1.

Elsewhere, China’s HSBC/Markit manufacturing PMI for May was revealed yesterday. The preliminary data put the figure at 49.7, well above expectations of 48.1, though still below the 50.0 contraction/expansion mark. April had recorded a significant slowdown in factory activity, with HSBC logging 48.1.

Ukraine

Ukraine’s military experienced the deadliest attack on its troops early on Wednesday. At least 14 soldiers were killed and a reported two dozen injured. Ukrainian officers told the BBC that the attack was carried out by mercenaries, and not the separatists.

Later on Friday, Russian President Vladimir Putin declared that Moscow will “respect” the choice of the Ukrainian people, adding that he believed the country had descended into “full-scale civil war,” the BBC reported.

Ukraine is preparing to hold a presidential election on May 25, and in the run-up to the vote all developments will be closely watched. Kiev hopes the election will soften the conflict, though the eastern rebels have long since declared they will boycott the vote, and will try to incorporate the separatist regions in the Russian Federation.

Natural gas

Front month natural gas futures, due in June, added 0.89% at the New York Mercantile Exchange to trade for $4.398 per million British thermal units at 13:10 GMT. Prices ranged from $4.358 to $4.404 per mBtu. Yesterday the blue fuel lost 2.54%, after a sizable gain in supplies was reported, nearing a two-month low at $4.349 per mBtu. Over the previous four sessions the contract has lost 1.17%.

According to AccuWeather.com, New York will be cloudy and might see rains and thunderstorms today and tomorrow. Temperatures will range 56-78 degrees Fahrenheit. Starting on Sunday readings will rise, reaching into the 80s at the start of next week, which is several degrees above average.

Boston will be quite cooler than normal today, with temperatures no higher than 58, 10 degrees below usual highs. Come Saturday the heavy clouds will give way to the Sun, and temperatures will rise up to the high 60s. Next week will probably be normal in terms of temperature, though there might be some heat both at the start and end.

Chicago is set for some cool, with readings ranging low 50s to mid 60s, slightly below average, before Sunday brings a sizable warm up, with highs into the upper 70s. Temperatures next week will follow suit, with readings a few degrees above normal.

Los Angeles will also be cooler up to Sunday, with some clouds and a possible thunderstorm. Temperatures will be no higher than 72-73 Fahrenheit, before next week readings rise up to reach the low 80s, several above average.

US supplies

Yesterday the EIA released the weekly report on natural gas storage levels in the US for the week through May 16. The report showed that blue fuel supplies had added 106 billion cubic feet (bcf), exceeding expectations of 100-103 bcf growth. The figure records the biggest weekly gain since June 2013, and is 16 bcf above the 5-year average increase for the week.

However, stocks still need to recover more than 2.5 trillion cubic feet in order to restore pre-winter levels before November. This equals an average of more than 100 bcf gains each week till then, and as summer season sets in such growth might be hard to achieve.

Shale gas production is peaking, but power demand will be inevitably growing, as air conditioners are put to work for the hot summer months ahead.