Commodities trading outlook: crude oil and natural gas futures

WTI futures were lower during afternoon trade in Europe today, while Brent continued to gain. Fighting continued in Iraq, threatening the countrys largest refinery. Meanwhile, natural gas futures slid, as the US released weekly figures on blue fuel inventories.

West Texas Intermediate futures for settlement in July traded for $105.66 per barrel at 14:11 GMT on the New York Mercantile Exchange, down 0.29%. Prices ranged from $105.32 to $106.63 per barrel. The US contract dropped 0.37% yesterday, and so far this week has lost about 0.9%, after a nine-month high was reached last week.

Meanwhile on the ICE in London, Brent futures due in August stood for a 0.48% gain at $114.81 per barrel at 14:12 GMT. Daily high and low stood at $114.87 and $114.15 per barrel, respectively, reaching a nine-month high. Brent’s premium to August WTI stood at the quite significant $9.36, after last session’s closing margin of $8.67. The European contract added 0.71% on Wednesday, and so far this week has added more than 1.5%.

“Fear of supply disruption remains the driver of the market,” Gene McGillian, analyst and broker at Tradition Energy in Stamford, Connecticut, said for Bloomberg. “Brent-WTI is widening again, continuing to point to the sensitivity the European markets have to the events in Iraq. The fundamentals are still bearish for WTI.”

Iraq

Sunni militants, led by a group of extremists called ISIS (Islamic State in Iraq and the Levant), continued fighting security forces in many towns in the northern and western provinces of the country. Fighting was also reported at Iraqs largest oil refinery at Baiji, which supplies 40% of Iraqi domestic fuel demand. Some 30 000 people, who work at the refinery had been evacuated earlier.

Authorities assured that the military were in control of the refinery, and that the militants were being pushed back. The government also insisted insurgents do not threaten Baghdad, nor the southern oilfields, which account for 90% of Iraqi oil output.

“Exports haven’t been affected yet, so the price gain we’ve seen so far is only on speculation that things might deteriorate further and instability will spread to the south of Iraq,” Ben Le Brun, a markets analyst at OptionsXpress in Sydney, said for Reuters. “But as soon as we hear about production affected, then we will start to see the price move up more dramatically. But it’s very hard to put a figure on this. In a worst case scenario, Brent could go above $120 at a minimum.”

Iraq is OPEC’s second-top oil producer, and exports some 3 million barrels per day from its main southern terminal at Basra.

US outlook

The US Energy Information Administration (EIA) posted its weekly oil inventories report for the seven day through June 13 yesterday. The log revealed a smaller-than-expected drop for crude supplies, which declined by 0.6 million barrels. Imports of crude had slightly increased after dropping 20% over the previous two weeks. Meanwhile, gasoline stockpiles grew, as the report logged a 10% increase in motors gasoline production.

Elsewhere, the US posted more economic readings today. Initial applications for unemployment benefits for the week ended June 14 were logged at 312 000, beating expectations and improving on the 317 000 for the previous week. Meanwhile, continuing claims for the week through June 7 were also better than expected at 2.561 million, which is the lowest reading since October 2007.

“The trend in initial claims is good,” Ryan Sweet, senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said for Bloomberg before the report. “The job market continues to heal.”

Philadelphia Fed Manufacturing Index for June was also revealed today. The figure was logged at 17.8, beating expectations and improving on Mays 15.4 reading.

Natural gas

Front month natural gas futures, due in July, dropped 1.42% at the New York Mercantile Exchange to trade for $4.593 per million British thermal units at 14:40 GMT today. Prices ranged from $4.579 to $4.690 per mBtu. The contract dropped 1.06% yesterday, and so far this week the blue fuel has lost more than 1.5%.

The Energy Information Administration’s (EIA) reported on natural gas stockpiles for the week through June 13 today. The log revealed a gain of 113 Billion cubic feet (Bcf) for inventories, while analysts at NatGasWeather.com had suggested a 105-110 Bcf injection. The 5-year average gain for the week is 85 Bcf.

Inventories levels remain 29.1% below last years readings for the same week, and although the deficit has been constantly shrinking, the US is entering summer air-cooling season, when injections will probably be smaller. The above-normal temperatures over the US recently will probably dent gains in the following week, with more heat at the start of July.

“A pretty dramatic warm-up is on the way,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said for Bloomberg. “The expectation that we’re going to have a cool summer is going to be challenged for the next couple of weeks.”

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.