Commodities trading outlook: crude oil and natural gas futures

WTI and Brent futures were relatively unchanged during afternoon trade in Europe today, after the US posted key economic readings. Iraq kept firm support for prices, as rebels advanced towards Baghdad, though it failed to generate further gains. Meanwhile, natural gas futures were also steady, as weather patterns project more heat for top-consumer US.

West Texas Intermediate futures for settlement in July traded for $106.72 per barrel at 14:45 GMT on the New York Mercantile Exchange, down 0.17%. Prices ranged from $106.01 to $106.84 per barrel. The US contract was unchanged yesterday, at -0.01%, after it added about 4% last week, reaching a nine-month high at $107.68 on Friday.

Meanwhile on the ICE in London, Brent futures due in August stood for a 0.12% gain at $113.08 per barrel at 14:46 GMT. Daily high and low stood at $113.21 and $112.16 per barrel, respectively. Brent’s premium to August WTI stood at $6.86, after Monday’s closing margin of $6.64. The European contract added 0.43% on Monday, after it also gained about 4% last week, also reaching a nine-month high at $114.07 on Friday.

“The situation in Iraq at the moment is not worsening and there is nothing new to generate more upside,” John Kilduff, partner at Again Capital LLC, said for Bloomberg. “There will be a sharp pullback if it’s virtually assured that the southern oil production is going to be maintained.”

Iraq

Iraqi authorities reported “successful counterattacks”, as rebels attacked areas just 65km north of Baghdad. Meanwhile, the Kurdish autonomys prime minister, Nechirvan Barzani, has told the BBC he thinks Iraq may not stay together as Sunni areas feel neglected by the Shia-dominated Iraqi government.

“In the absence of a direct attack on Baghdad, we could see a further moderation in prices,” Michael McCarthy, chief strategist at CMC Markets in Sydney, said for Bloomberg. “We’ll need to keep a risk premium until there’s some sort of resolution. The key driver is the Middle East.”

ISIL, which is composed mainly of religious extremist, is said to also be employing former Iraqi military officers and soldiers, who were loyal to the late dictator Saddam Hussein, himself a Sunni. Other than former military and extremists, some tribal leaders have also expressed their loyalties to the ISIL, while others have declared otherwise, sending troops to aid Baghdad’s military. Meanwhile, Shia clerics have announced a “Call-to-arms” for volunteers to join the fight against the Sunni-led onslaught.

US economy

The US, which consume 21% of the oil in the world, posted the key reading on CPI today. The figure was recorded at 2.1% annual growth and 0.4% month-on-month, while core CPI, which exclude food and energy, added 0.3% on a monthly basis and 2.0% year-on-year. All standings beat expectations and set a positive tone ahead of the Fed’s meeting tomorrow. CPI is a leading indicator for consumer spending, which generates about 80% of US GDP.

The reading on the annual CPI is a main indicator used by the Federal Reserve to gauge the direction of the economy, and therefore make adjustments to monetary policy. As previously indicated, the CPI target of the Fed is 2.0% on a yearly basis, and it acts towards it.

The Federal Open Market Committee (FOMC), which makes the decisions on policies, will meet tomorrow. On the agenda are the key decisions on interest rates and on monthly assets purchases. Experts forecast another $10bn trim to purchases, while the main interest rate is expected to remain unchanged at 0.25%.

US housing data was also released today. The annualized rate of housing starts dropped 6.5% on a monthly basis in May and stand at 1.001 million, while building permits’ annualized rate declined by 6.4% on a monthly basis to 0.991 million. The real estate sector accounts for about 13% of US GDP.

Elsewhere, the private American Petroleum Institute (API) will reveal its reading on oil inventories’ levels for the week ended June 13 later today. Analysts project a 0.250 million-barrel gain for crude supplies. A Bloomberg survey suggested 0.750 million drop. The official report is tomorrow.

Natural gas

Front month natural gas futures, due in July, added 0.04% at the New York Mercantile Exchange to trade for $4.709 per million British thermal units at 14:47 GMT. Prices ranged from $4.672 to $4.726 per mBtu. The contract dropped 0.68% yesterday, though it did reach a five-week high at $4.886 per mBtu, after closing about 0.8% higher for last week on Friday, with a massive 5.63% daily increase on Thursday.

The US will post the weekly natural gas inventories report for the week through June 13 this Thursday. The log will probably reveal a 100-105 Bcf gain, NatGasWeather.com said, which would be 15-20 Bcf more than the 5-year average gain for the period. The above-normal temperatures will dent gains over the current and the following weeks, with more heat at the start of July.

Power demand usually spikes during summer, as air conditioners are put to work, and power stations account for 30% of US natural gas consumption. Usually there is a direct correlation between rising summer temperatures and natural gas prices.