Commodities trading outlook: crude oil, natural gas futures

West Texas Intermediate fell in late European trading on Tuesday, while Brent swung between gains and losses, as ample global supply offset geopolitical tension in several regions of key importance for the oil market. Investors awaited the release of US crude oil inventories statistics, as well as all-important data from the US and Eurozone later in the week. Natural gas erased daily gains as bearish weather sentiment continued to dominate the market.

On the New York Mercantile Exchange, WTI crude for delivery in September fell by 0.78% to $100.88 per barrel by 13:26 GMT. Prices ranged between a daily low of $100.37, the lowest in two weeks, and day’s high at $101.83 a barrel. The US crude benchmark closed 0.41% lower on Monday at $101.67.

Meanwhile on the ICE, Brent futures for settlement in the same month added 0.13% to trade at $107.71 a barrel, having shifted between $108.05 and $107.13 a barrel. The European crude benchmark lost 0.76% on Monday and settled at $107.57 a barrel. Brent traded at a premium of $6.83 to its US counterpart, up from Monday’s close at $5.90.

US crude remained pressured to the downside as a string of mixed US data on Monday suggested demand in the world’s biggest consumer may be softening and market players abstained from entering big positions ahead of this week’s crucial data releases, including FOMC’s policy meeting outcome.

WTI was little affected by consumer confidence in the US surprisingly jumping to nearly a 7-year high. The Conference Boards consumer confidence index surged to 90.9, the highest since October 2007, defying expectations for a drop to 85.3 from the previous months reading of 86.4.

A strong dollar also kept oil pressured to the downside. The US dollar index for settlement in September stood at 81.290 at 14:30 GMT, up 0.21% on the day. The US currency gauge touched a daily high of 81.300, the highest level in almost six months. A stronger US dollar makes commodities priced in it more expensive for foreign currency holders and limits their appeal as an alternative investment.

To watch closely

Market players now eyed the upcoming US Q2 GDP report, due on Wednesday, as well as the outcome of FOMCs two-day policy meeting.

On Thursday, we are likely to see a moderate jump in initial jobless claims for the week through July 25th, but they are likely to remain in the shadow of Friday’s non-farm payrolls and unemployment rate for July. US employers are likely to have added 230 000 jobs this month, compared to 288 000 in June, while the unemployment rate is anticipated to have remained flat at 6.1%.

Also due on Friday are the Markit Economics Manufacturing PMI, projected to come out unchanged, the ISM Manufacturing Report on Business and the Reuters/Michigan Consumer Sentiment Index, both expected to have marked an improvement.

In Europe, economic releases this week will include the major economies’ consumer inflation, unemployment rate and manufacturing activity growth, as well as the same categories for the Eurozone as a whole.

In China, the National Bureau of Statistics is expected to report on Friday that manufacturing activity in July advanced for a fifth consecutive month, while a separate reading prepared by HSBC and Markit Economics will likely be flat. The Chinese Manufacturing PMI probably rose to 51.4 from 51.0 in June, while the HSBC Manufacturing PMI is expected to have remained unchanged at 52.0.

US crude inventories

Investors also eyed upcoming US inventories data, released by API at 20:30 GMT, as well as Wednesday’s government statistics provided by the Energy Information Administration.

According to a weekly Bloomberg survey ahead of EIA’s report, the government data is expected to show that US crude oil inventories fell by 1 million barrels in the seven days through July 25th.

However, gasoline stockpiles, more closely watched during the summer driving season, are expected to have increased by another 1 million barrels to 218.9 million, hitting the highest level since March. Distillate fuel supplies likely jumped by 1.5 million barrels, the survey showed.

Crude contracts were further pressured as annual forecasts for global supply and demand turned more bearish. Morgan Stanley analysts led by Adam Longson said in a note, cited by CNBC: “Barring new supply outages, we see global supply capacity rising by 1.8 million barrels per day (bpd) in 2014 – the fastest growth in a decade.” This compares to predictions for a jump in global demand of 1.1 million barrels per day.

Geopolitcal tension

European and US leaders agreed on Monday to further sanction Russia’s financial, energy and defense sectors, which however is expected to have no impact on shipments from the world’s biggest energy exporter.

In Libya, continuing clashes between Libyan government forces and Islamist militants in Benghazi over the weekend led to the death of more than 35 people, keeping supply prospects uncertain.

The Libyan government announced on Monday that an oil depot near Tripoli’s international airport caught fire during clashes between rival militias, and sought international help. However, tension in Libya, whose output dropped by 20% last week to 450 000 bpd, has already being priced in the market and has little effect on price movements.

In Iraq, conflicts with Islamist militants in the north left oil production in the country’s south untouched, keeping oil exports unharmed at record-high levels. The market, however, gained some support as clashes in the Gaza strip seemed to have no prospects of being ended soon. Israeli Prime Minister Benjamin Netanyahu warned of a prolonged war after the latest attack from Palestinian fighters.

Natural gas

Natural gas erased its daily gains to mark a third straight session of losses as short-term weather patterns maintained the overall bearish market sentiment.

On the New York Mercantile Exchange, natural gas futures for settlement in September fell by 0.37% to $3.751 per million British thermal units by 14:30 GMT. Earlier, prices slid to a daily low of $3.739, close to Monday’s 8-1/2-month low of $3.725. The power-plant fuel fell by 0.58% on Monday to settle at $3.765.

According to NatGasWeather.com’s forecast for the July 29 – August 4 period, reinforcing cool blasts will follow throughout the week, ensuring comfortable below-seasonal readings and much lower-than-usual cooling demand over many parts of the country during the weekend. As the cooler weather pushes deep into Texas and the Southeast, the EIA is set to report a yet another larger-than-average weekly build in nationwide US natural gas inventories for the week ended July 25th.

Natural-gas market analysts at NatGasWeather.com expect this weeks EIA data to show a build near or little over 90 billion cubic feet, again well above the five-year average.

Cooling demand during the next seven days is expected to be lower-than-normal over most of the US, apart from the western and southernmost areas of the country where the persisting hot weather will drive strong cooling demand.

In the 8 – 14 day time span, NatGasWeather.com expects temperatures over the eastern and central US to remain below-average for the first several days of the period, before giving way to warmer weather. Hot conditions are expected to extend from the West into the South, boosting cooling demand to moderate on national levels and locally high. However, excessively hot conditions are not expected to occur as cool Canadian weather systems are expected to try and push into the US around the middle of August. Nevertheless, the expected warming in the southern and southeastern states will support prices to the upside.