Commodities trading outlook: crude oil and natural gas futures

WTI futures were leveled during midday trade in Europe today, while Brent had logged minor losses. Improving outlooks from China were not enough to overcome the build up in crude supplies, reported last week. However, the US economy continues to fuel positive sentiment for oil demand. Meanwhile, natural gas futures traded higher, as investors bet on growing power demand in top-consumer US. However, inventories scored the biggest injection in five years, a report on Thursday revealed.

West Texas Intermediate futures for settlement in July traded for $102.69 per barrel at 13:09 GMT on the New York Mercantile Exchange, down 0.02%. Prices ranged from $102.62 to $103.35 per barrel. On Friday the contract closed for a 1.57% weekly loss, after the weekly EIA report revealed climbing supplies in top-consumer US.

Meanwhile on the ICE in London, Brent futures due in July recorded a 0.23% drop to trade for $109.16 per barrel at 13:00 GMT. Daily high and low stood at $109.87 and $109.12 per barrel, respectively. Brent’s premium to WTI stood at $6.47, largely on par with Friday’s closing margin of $6.70. Last week the contract dropped 1.02%.

Demand outlook

Last week

Crude oil was pressured by a bearish report on US stockpiles last week, which recorded sizable weekly gains for commercial inventories. Cushing, however, saw further draws. Domestic production of crude was stale, while imports grew double what they had decreased the previous week, accounting for most of the supply gain.

Gasoline inventories were drawn, but a rise in consumption is hard to take away, since imports and production fell by the exact amount. However, a string of positive data from the US last week signaled recovering demand in the world’s top oil-consuming economy.

On Friday, reports showed a slight increase for personal income and a minor decrease in spending, while Chicago PMI added well above expectations, while Michigan’s consumer sentiment was unchanged. Earlier data on durable goods orders, consumer confidence and services PMI scored much better than expected, significantly boosting sentiment for the US economy.

Yesterday China, which accounts for 11% of world oil consumption, posted manufacturing PMI for May, logging 50.8, improving on April’s 50.4, and exceeding forecasts of a standing of 50.6. Any reading below the boundary of “50″ means contraction in activities, and anything above it means expansion. The bigger the distance from 50, the greater the pace of expansion or contraction.

“The Chinese PMI figure came out a little bit better than expected and that gives the market hope that there might be a steadying process going on with the manufacturing sector and the economy generally,” said for Bloomberg Ric Spooner, chief strategist at CMC Markets in Sydney.

This week

Earlier today, the EU, which consumes 14% of all oil, posted final standings for May PMI. Germany scored lower than expected at 52.3, after 52.9 for April, while France logged a slight improvement at 49.6, to beat expectations of a 49.3 standing. Meanwhile, the Eurozone, as a whole, posted 52.2, below the 52.5 figure for the previous month. Any reading below the boundary of “50″ means a contraction, and anything above it means expansion. The bigger the distance from 50, the greater the pace of expansion or contraction.

Later today, ISM will post its May manufacturing PMI report for the US. Analysts suggest an increase to 55.4, up from 54.9 for April. Factory employment will also be revealed by ISM, with forecasts of a standing of 55.7, adding on April’s 54.7.

Tomorrow several more reports are due. The EU is expected to reveal unemployment rate for April in the Bloc remained unchanged at 11.8%. The preliminary figure for May CPI in the Eurozone is forecast at an unchanged 0.7% on a yearly basis, while Core CPI probably dropped to 0.9% on an annual basis.

Also tomorrow, US factory orders for April will be reported. Analysts project a reading of 0.6% monthly growth, after 0.9% in March.

Later this week, on Wednesday the EU will report on May PMI and Q1 GDP, while the US will post services PMI and a nonfarm employment report. On Thursday, HSBC will post services PMI for China, while the EU will reveal retail sales and a crucial ECB interest rate decision. Friday will close the week with reports for industrial production in Germany, and key data on payrolls in the US.

Ukraine

Hundreds of armed rebels press on with the attack on a military base, near the Russian-Ukrainian border in the region of Luhansk, Ukrainian news agency UNIAN reported. Border troops have sustained injured, but have reportedly repelled the initial assault.

Last week Ukraine saw some of the fiercest fighting 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.

Natural gas

Front month natural gas futures, due in July, grew by 0.42% at the New York Mercantile Exchange to trade for $4.561 per million British thermal units at 13:10 GMT. Prices ranged from $4.549 to $4.604 per mBtu. On Friday the contract logged a 4.2% gain, as investors bet on an increase in power demand in the US.

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

Tom Saal, senior vice president of energy trading at FCStone Latin America LLC, said, cited by Bloomberg, that this week’s EIA report may show a 119 bcf jump in US gas inventories, above the five-year average of 93 billion cubic feet.

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 order to fully replenish the drained stockpiles, weekly injections would need to average 90 bcf through October, 20 billion above the average gains.

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 is set for a nice and warm, sunny day. Temperatures will range 65-82 degrees Fahrenheit, several above average. Readings will remain relatively unchanged through this week, with slight cool later on, though temps will still be above average. Next week will see a significant cooldown, which will bring temperatures to 10 below normal.

Boston will also be quite warmer than usual today, with plenty of sun and readings reaching into the 80s, several above usual. Starting tomorrow, readings will start sliding, to be slightly lower than average for the second half of the workweek. The weekend will be sunny and pleasant, with temperatures 60 to high 70s, a few degrees more than usual.

Chicago might experience a couple of thunderstorms today, but temperatures will remain relatively high at 65-80 Fahrenheit. Tomorrow will be mostly sunny, and just as warm, before on Wednesday readings plummet by 10 degrees, alongside heavy rains and thunderstorms. However, through to the weekend temps will normalize, to range 60 to mid 70s.

Over on the West Coast, Los Angeles will have normal temperatures this week, with highs in the upper 70s and lows about 60, before a slight warm up for the weekend, with readings several above average. Up North, Seattle will be warmer than usual today, temps between 50 and 75. Tomorrow readings will drop a few, though the weather will be mostly sunny. The second half of the week will be sunny and pleasantly warm, with highs in the mid 70s and lows about 50.