Commodities trading outlook: crude oil and natural gas futures

WTI and Brent futures continued downwards during midday in Europe today. Yesterday both contracts backed off from monthly highs, amid speculation of growing crude supplies in top-consumer US. Meanwhile, natural gas futures added on previous gains, supported by speculation of increasing power demand, due to the above-normal temperatures in the US.

West Texas Intermediate futures for settlement in July traded for $103.55 per barrel at 13:58 GMT on the New York Mercantile Exchange, down 0.54%. Prices ranged from $103.42 to $104.39 per barrel. Yesterday the US benchmark lost 0.23%, after the two-day electronic trading session, though it did near a three-month peak. Last week the contract gained 2.71%, after the Energy Information Administration in the US revealed supplies of crude had decreased by almost 8 million barrels.

Meanwhile on the ICE in London, Brent futures due in July recorded a 0.47% drop to trade for $109.50 per barrel at 13:49 GMT. Daily high and low stood at $110.40 and $109.41 per barrel, respectively. Brent’s premium to WTI stood at $5.95, on par with last session’s closing margin of $5.91. Yesterday the European brand dropped 0.27%, after last week the contract logged a 0.71% increase.

US supplies

Usually, the US Energy Information Administration releases its weekly report on oil stockpiles on Wednesday, but due to the holiday on Monday, this week the report is due tomorrow. Also one day later, meaning today, will be released the weekly American Petroleum Institute (API) report. According to a Bloomberg survey, crude inventories probably rose by 250 000 barrels, while a Reuters poll suggests an 700 000 barrel gain.

Last week supplies saw the biggest draw since January. The report for the week ended May 16revealed that crude oil stockpiled in the US had dropped by almost 8 million barrels. 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.

US economy

Yesterday the US, which consume more than 21% of the worlds oil, posted several important economic indicators. The Conference Board (CB) reported its consumer confidence index standing for May. The figure was put at 83.0, in line with expectations, to mark the highest reading since January 2008. The index is a leading indicator for consumer spending, which generates about 70% of US GDP. The CB revised its reading for April down to 81.7.

Also yesterday, Markit posted its preliminary US services PMI for May. The reading was logged at 58.4, beating expectations for a figure of 55.6 by quite a significant margin and growing on April’s 55.0, testifying to the growing confidence in the US economy. The services sector accounts for almost 80% of US GDP.

Earlier, durable goods orders for April were also revealed. Total orders added 0.8% on a monthly basis, beating expectations of a 0.5% fall, while core orders, which exclude transportation items, logged a 0.1% growth, short of expected 0.3% gain. Last month total orders registered an upward-revised 3.6% monthly growth, while core goods had added 2.9%.

The US will report on GDP growth, jobless claims and pending homes sales tomorrow. GDP growth for the first quarter of 2014 will probably be downgraded from the 0.1% initial figure to -0.5% on a quarterly basis. The brutal winter withered economic activities, and a relatively negative reading was expected.

Initial applications for unemployment benefits are projected to stand at 318 000 for the week ended May 24, down from 326 000 for the previous reading, while continuing claims for the seven days through may 17 will probably be unchanged at 2.650 million.

Agreed home sales, which only await payment, for the month of April are forecast to have grown by 1.0% on a monthly basis, after adding 3.4% in March.

On Friday, a report on personal income and spending for April in the world’s top economy will be released. Economists project a minor monthly increase in both.

Ukraine

Ukraine saw an escalation of fighting on Monday, as militants attacked the airport in Donetsk, and authorities soon retaliated, employing airstrikes and heavy weaponry. Possibly up to 100 separatist fighters had been killed. The mayor of Donetsk reported there have also been civilian casualties and urged the populace to stay indoors.

The attack came a day after the presidential election took place, with a clear winner in the first round. Former foreign minister and billionaire Petro Poroshenko received about 54% of the vote. Turnout was probably very poor, about 50%, with the separatist provinces of Luhansk and Donetsk boycotting the vote, and forcefully closing all voting stations.

Mr Poroshenko vowed to press on with the “anti-terrorist” operation, and said that it “should and will be over in a matter of hours.” He added that for any peaceful resolution to be lasting, there must be cooperation with Russia, and said he is ready to work with the Kremlin. Earlier today, Russian President Vladimir Putin’s foreign affairs adviser Yury Ushakov restated Moscow’s earlier position that the will of Ukraine was “respected,” but rebuked the “provocative military actions” by the Ukrainian military.

Natural gas

Front month natural gas futures, due in July, grew by 0.49% at the New York Mercantile Exchange to trade for $4.533 per million British thermal units at 14:00 GMT. Prices ranged from $4.488 to $4.550 per mBtu. Yesterday the blue fuel gained 2.41% on warmer weather over most of the US stoking power demand outlooks.

Tomorrow the US Energy Information Administration (EIA) will reveal its weekly report on natural gas inventories in the US for the week through May 23. Last Thursday, the EIA report showed that supplies of the blue fuel 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.

Weather report

According to AccuWeather.com New York will be quite cool today, with temperatures ranging 51 to 62 degrees Fahrenheit, several below average. Tomorrow readings will start climbing to enter average range on Friday and keep it till next week. June will make an entrance with temperature highs in the low-to-mid 80s next week, heralding the start of the hot season.

Boston will be cloudy and cooler than normal today, with temperatures ranging 44 to 53, which is 12-15 degrees below average for the day. Starting tomorrow, readings will begin climbing to be near-normal during the weekend, with temps ranging 52-65 degrees, which is still a few short of average. Next week will probably bring a sizable warm up, to mark the beginning of the Summer months.

The weather over Chicago will be sunny and normal today, with temperatures ranging 55-69 degrees, in line with averages. Tomorrow expectations project the same picture, before on Friday temperatures begin rising to range mid 60s to high 70s over the weekend.

On the West Coast, Los Angeles will be slightly warmer than usual throughout the whole week, with highs in the upper 70s and lows about 60. Up North, Seattle will be mostly cloudy with temperatures ranging high 40s to mid 60s up today and tomorrow, before sunny and warm weather during the weekend bumps readings up to a comfortable 50-75 range.