Commodities trading outlook: crude oil and natural gas futures

WTI and Brent futures were headed for weekly losses during midday trade in Europe today, pressured by growing supplies in top-consumer US. Economic outlooks remain positive, but fundamentals weighed on investors sentiment. Elsewhere, Ukraine remains as potential support. Meanwhile, natural gas futures were on course for a sizable weekly gain, amid rising temperatures in the US.

West Texas Intermediate futures for settlement in July traded for $102.88 per barrel at 13:19 GMT on the New York Mercantile Exchange, down 0.68%. Prices ranged from $102.81 to $103.56 per barrel. Yesterday the US benchmark added 0.84% with support from the US oil report, which revealed big draws from Cushing. So far this week the contract has fallen by 0.73%, 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 0.43% drop to trade for $109.50 per barrel at 13:10 GMT. Daily high and low stood at $110.13 and $109.43 per barrel, respectively. Brent’s premium to WTI stood at $6.62, widening Thursday’s closing margin of $6.39. Yesterday the European brand gained 0.15%, and so far this week the contract has lost 0.51%.

US oil inventories

The weekly Energy Information Administration report on oil inventories in the US for the week ended May 23 was released yesterday. Commercial crude oil stockpiles had gained 1.657 million barrels to stand at 393 million barrels, after for the previous week stocks had declined by 7.226 million barrels. The private American Petroleum Institute (API) had suggested a 3.490 million gain, while a Bloomberg survey projected 500 000 barrel growth. A Reuters poll estimated a 700 000 barrel increase.

Domestic production added 38 000 barrels per day (bpd) to average 8.472 bpd, after last week output had gained a further 6 000 bpd. Meanwhile, imports added the massive 1.340 million bpd to average 7.809 bpd, after a sharp decline of 0.658 million bpd for the previous reading.

Inventories at Cushing, Oklahoma, the delivery point of the New York WTI contract, dropped to 21.7 million barrels, a decline of 1.5 million, after a further 200 000 draw for the previous reading, to log the lowest level since November 2008. Meanwhile, hubs at the Gulf Coast added 3.1 million for a figure of 213.1 million barrels, after dropping 5.7 million for the previous week.

Motor gasoline inventories were reported at 211.6 million barrels, to log a drop of 1.8 million, after a near 1 million growth for the week through May 16. API had reported a 1.440 million decline for gasoline. Distillates were almost unchanged at 116.1 million barrels, after a 3.4 million growth last week, while API had projected a 0.8 million growth.

Refinery utilization rate was at 89.9%, adding 1.2% after a slight slowdown was recorded in the previous reading. Gasoline production in US refineries averaged 9.526 bpd, falling by 66 000 bpd, after last week a further 14 000 bpd drop was logged. Imports of gasoline decreased by 272 000 bpd to stand at 725 000 bpd, after a 120 000 growth was reported in the previous report. Distillates production was almost unchanged at 4.990 million bpd, after a 91 000 bpd gain last week, while imports added fell to 148 000 bpd, from 178 000 for the week ended May 16.

“Better gasoline demand bodes well for the U.S. economy,” said for Reuters Tony Nunan, oil risk manager at Mitsubishi Corp in Tokyo. “Overall, I see oil supported by geopolitical tensions and an improving demand outlook.”

US economic reports

The US, which consume more than 21% of the worlds oil supply, revealed consumer income and spending data today. Personal income, which is a leading indicator for spending, for the month of April was reported to have increased 0.3% on a monthly basis, in line with forecasts, after a further 0.5% growth in March. Personal spending, which in turn is a leading indicator for consumer inflation, recorded a contraction of 0.1% since March, falling short of expected 0.2% growth, after adding 0.9% for the previous month.

Later today, 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.

Previously, the US released several economic reports yesterday. The Bureau of Economic Analysis reported a contracting GDP for the first quarter, while jobless claims improved on expectations and previous standings. Pending home sales were also reported to improve, though slightly less than expected.

Earlier this week, durable goods orders scored better than expected, while consumer confidence and services PMI were much better than previous readings, significantly boosting sentiment for the US economy.

Ukraine

Ukraine saw some of the fiercest fighting this week, since the conflict began earlier this year. Yesterday rebels shot down a military helicopter, killing at least 12 Ukrainian soldiers, including a high-ranking general, who headed special combat training for the newly created National Guard. On Monday, separatist fighters assaulted Donetsk airport, only to suffer more than 100 dead, according to the “Donetsk People’s Republic” press office.

The conflict seems to have been galvanized by the presidential election in Ukraine, which took place last Sunday, May 25. The winner, collecting 54% of the vote, is billionaire and former foreign minister Petro Poroshenko. He vowed to punish the rebels, and to have the “anti-terrorist operation over within hours, not months”. He has previously said that he would also never recognize Russia’s annexation of the Ukrainian Black Sea peninsula of Crimea. Mr Poroshenko will be inaugurated on June 7.

Natural gas

Front month natural gas futures, due in July, declined by 0.86% at the New York Mercantile Exchange to trade for $4.520 per million British thermal units at 13:21 GMT. Prices ranged from $4.512 to $4.592 per mBtu. Yesterday the blue fuel dropped 1.21% on the reported gain for US stockpiles, though it did reach a three-week high of $4.665 per mBtu. So far this week, the contract has added 3.51%, as power demand outlooks in top-consumer US are on the rise.

Yesterday the US Energy Information Administration (EIA) revealed natural gas supplies in the country had gained 114 billion cubic feet (bcf) for the week ended May 23, exceeding expectations of a 110 bcf increase. The injections is biggest weekly growth since June 2009, and is 21 bcf above the average gain for the week.

Stocks, however, remain 40% below the 5-year average for the week, and need to recover more than 2.5 trillion cubic feet until November, when heating demand spikes natural gas consumption.

In the meantime, the hot summer months ahead should bump up natgas-fueled power demand, as air conditioners are put to work. The EIA, however, expects sustained high yields and gains for stockpiles, through booming shale gas extraction.

US weather report

According to AccuWeather.com New York will be cloudy today, with temperatures ranging 57 to 72 degrees Fahrenheit, just below average, and an afternoon thunderstorm. Tomorrow readings will remain near-normal, before a nice warm up on Sunday, which will see high in the upper 70s. 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 cloudy today, with temperatures ranging 52 to 68, a few below the average for the day. Tomorrow readings will drop a few, to range 49-62, though it will be mostly sunny. On Sunday temps will rise to lows in the mid 50s and highs in the mid 70s. 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 warm today, with temperatures ranging 58-74 degrees, which is normal for the day. Tomorrow readings will climb to a few above average, and through the start of next week and June highs will reach to mid 80s.

On the West Coast, Los Angeles will be slightly warmer than usual today, and for the remainder of the week, with highs in the upper 70s and lows about 60. Up North, Seattle will be mostly sunny for the following days, with temperatures highs in the mid 70s and lows about 50, several above average.