Commodities trading outlook: crude oil and natural gas

WTI and Brent futures traded higher at midday in Europe today, after being pressured yesterday by a preliminary report on US inventories, showing supplies increased. The official report is due later today. Contracts remained supported by strongly improving readings on the US economy, the world’s top oil consumer. Meanwhile, natural gas futures were largely unchanged during midday in Europe today. Over the previous three days the blue fuel gained almost 5%, as investors bet power demand will be surging in the US amid summer temperatures forecasts.

West Texas Intermediate futures for settlement in July traded for $102.92 per barrel at 11:26 GMT on the New York Mercantile Exchange, up 0.19%. Prices ranged from $102.68 to $103.11 per barrel. Yesterday the US benchmark lost 1.34%. So far this week the contract has fallen by 1.57%, though it did near a three-month peak at $104.50 per barrel.

Meanwhile on the ICE in London, Brent futures due in July recorded a 0.31% gain to trade for $110.15 per barrel at 6:41 GMT. Daily high and low stood at $110.20 and $109.72 per barrel, respectively. Brent’s premium to WTI stood at $7.23, largely on par with Wednesday’s closing margin of $7.09. Yesterday the European brand dropped 0.19%, and so far this week the contract has lost 0.66%.

US oil inventories

Yesterday the private American Petroleum Institute posted its readings on oil supplies in the US for the week through May 23. Crude oil stockpiles were logged to have gained 3.490 million barrels. Distillates were projected to have added 0.821 million barrels, while stockpiled gasoline had declined by 1.440 million barrels. The Institute also reported that inventories at Cushing, Oklahoma, had dropped by 1.51 million barrels and were pushing critical operational levels.

The official government report is due later today. According to a Bloomberg survey, crude inventories probably rose by 500 000 barrels, while a Reuters poll suggests an 700 000 barrel gain.

“The API report is supportive of higher prices, it’s the reason for the firm tone in trading today,” said for Bloomberg Michael McCarthy, chief strategist at CMC Markets in Sydney.

Last week crude 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

As the biggest consumer of oil in the world, accounting for more than 21% of total demand, the US economy is a dominating factor for consumption outlooks and price levels of petroleum products.

Later today the Bureau of Economic Analysis will report its revised figure on US Gross Domestic Product. 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.

Elsewhere, 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.

Also today, agreed home sales, which only await payment, for the month of April will be revealed, and are forecast to have grown by 1.0% on a monthly basis, after adding 3.4% in March.

Tomorrow will also see some key US data. Personal income, which is a leading indicator for spending, for the month of April has probably increased by 0.3% on a monthly basis, after a further 0.5% in March. Personal spending, which in turn is a leading indicator for consumer inflation, is projected to have grown by 0.2% since March, after logging 0.9% for the previous month.

Also tomorrow, Chicago’s PMI for May will be reported, with expectations of a contraction to a standing of 61.0, down from 63.0 for April. Michigan’s consumer sentiment for May has probably added to 82.5, after 81.8 for April.

Earlier this week, durable goods orders scored better than expected, while consumer confidence and services PMI were much better than previous readings, boosting sentiment for the world’s top oil-consuming economy.

Natural gas

Front month natural gas futures, due in July, grew by 0.17% at the New York Mercantile Exchange to trade for $4.623 per million British thermal units at 9:01 GMT. Prices ranged from $4.606 to $4.630 per mBtu, reaching the highest level in three weeks. Yesterday the blue fuel gained 2.31%, and so far this week the contract has added 4.72%, as power demand outlooks in top-consumer US are on the rise.

Later today the Energy Information Administration (EIA) will post its weekly report on natural gas inventories in the US for the week through May 23. Experts estimate and increase of 110 billion cubic feet (bcf) is probable, which would be the biggest injection since June 2013. The average gain for the week is 93 bcf.

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 mostly sunny, but cool today, with temperatures ranging 55 to 67 degrees Fahrenheit, several below average. Tomorrow readings will start to climb 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 also be sunny and cooler than normal today, with temperatures ranging 49 to 62, several below the average for the day. Tomorrow readings will grow to be near-normal. During the weekend temps will range low 50s to upper 60s, 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, like on the East Coast, sunny, though cool today, with temperatures ranging 56-69 degrees, just below usual readings for the day. On Friday temperatures will begin rising to range mid 60s to high 70s over the weekend and into next week.

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 today, before sunny and warm weather on Friday and during the weekend bumps readings up to a comfortable 50-75 range.