Commodities trading outlook: crude oil futures rise on Ukraine peace hopes, natural gas dips

Both West Texas Intermediate and Brent crude benchmarks extended gains on Wednesday as Russia and Ukraine drew closer to striking a peace deal. A government report may show a drop in both US crude oil and refined product inventories. Encouraging US data also provided some support but a stronger dollar, fears of slowing Chinese and European demand and rising Libyan output kept gains in check.

On the New York Mercantile Exchange, WTI crude futures for settlement in October traded at $94.21 per barrel at 13:46 GMT, up 1.43% for the day, rebounding from Tuesday’s low of $92.88, which was the lowest since January 14th. Prices settled 3.2% lower from Friday’s close. Trading on Monday was suspended due to the Labor Day holiday.

Meanwhile on the ICE, Brent futures for delivery in the same month were up 1.62% at $101.97 a barrel, having shifted in a daily range between $102.05 and $100.40. The European crude benchmark fell 2.38% through Tuesday’s settlement to close at $100.34, the lowest since May 1st 2013. Brent was at a premium of $7.76 to its US counterpart, up from $7.46 on Tuesday.

Russian President Vladimir Putin said he is hoping for a peace accord to be reached between Ukraine and pro-Russian separatists on Friday when they resume talks in Minsk. He urged both counterparts to cease military action in eastern Ukraine and proposed a seven-point peace plan, which includes pulling back troops, halting active offensive operations, full prisoner exchange, international monitoring of the process, opening a humanitarian corridor for refugees and aid delivery, restoration of destroyed infrastructure and prohibiting the use of military jets against civilians.

Ukrainian President Petro Poroshenko said he had agreed a ceasefire process with his Russian colleague. In a statement Mr. Poroshenkos office said that their conversation resulted in an agreement on a process for ceasing fire in the Donbass region and that the two presidents reached a mutual understanding on steps leading to peace.

US inventories

Oil prices also drew support ahead of US supply data scheduled for release tomorrow. US crude oil inventories are expected to have fallen by 1 million barrels during the week ended August 29th, the EIA will report tomorrow, according to a Bloomberg survey of analysts. Gasoline stockpiles likely declined by 1.34 million barrels to 210.9 million, while distillate fuel supplies probably slid 1.2 million to 121.6 million barrels, the survey showed.

The industry-funded American Petroleum Institute will release its separate private data at 20:30 GMT, but API’s statistics have lesser influence on the market compared to EIA’s numbers. Both reports have been delayed by one day due to Monday’s holiday.

Additional support was gained following yesterday’s upbeat US manufacturing report, with the ISM Manufacturing PMI coming in at a nearly 3-1/2-year high of 59.0 in August after construction spending rebounded in July. This sharply exceeded analysts’ estimates for a drop to 56.8 from July’s high of 57.1.

However, a stronger dollar weighed on oil prices, with the US dollar index hovering near the highest levels in 14-months against a basket of major trading peers. The September contract stood at 82.930 at 13:48 GMT today, having shifted in a daily range between 82.860 and 83.075, the highest since July 18th 2013.

US data

Market players awaited Thursday and Fridays key US unemployment data to gauge how well the worlds biggest economy fared. Due out on Thursday are initial jobless claims for the week ended August 30th, expected to have risen by 2 000 to 300 000, while Automatic Data Processing will likely report that US employers added 220 000 jobs in August. The US trade deficit is expected to have widened to $42.2 billion in July from $41.54 billion a month earlier. Additionally, activity in the US services sector probably grew at a slower pace in August, with the corresponding ISM Non-Manufacturing PMI projected to register at 57.6 from 58.7 in July.

On Friday, the US Labor Department is expected to report that US employers added 225 000 people to payrolls in August, which would be the sixth straight month of job creation above 200 000, while the unemployment rate likely slid to 6.1% from 6.2% in July.

However, downbeat data from China and the Eurozone spurred bearish sentiment among market participants and pressured prices to multi-month lows.

Avtar Sandu, a senior commodities manager at Phillip Futures said for CNBC: “The weak factory data in China and Europe led to concerns over demand destruction, and that’s why prices dropped. The oil market is mainly driven by the demand side now. We don’t see many issues on the supply side, and at the moment investors are hardly paying any attention to all the geopolitical events going on.”

Additionally pressuring the market, output in Libya rose to 710 000 barrels per day, state-owned National Oil Corporation said, but a spokesman for the company warned its buildings are yet to be affected by clashes between rival militias. Meanwhile, Russia’s crude oil output rose by 1% to 10.52 million barrels per day in August, showing energy exports have not been affected by the geopolitical tensions between Russia and Ukraine and the West.

Natural gas

Natural gas erased earlier daily gains and plunged into negative territory as outlooks for cooler weather across most of the US early next week offset short-term forecasts pointing to a temperature rise.

On the New York Mercantile Exchange, natural gas futures for settlement in October fell by 0.80% to $3.901 per million British thermal units by 13:50 GMT. Prices ranged between day’s high and low of $3.917 and $3.857 per mBtu. The energy source lost 4.3% on Tuesday, the biggest drop in six months, to settle at $3.890.

The EIA is expected to report tomorrow one of the smallest builds during this years replenishment season due to last weeks overall warm weather. According to Tim Evans, an energy analyst at Citi Futures in New York, US gas inventories probably rose by 70 billion cubic feet (bcf) in the week ended August 29th. NatGasWeather.com analysts expect a gain in the range of 73 and 76 bcf.

According to NatGasWeather.com, cooling demand within the September 3rd – 9th time span is expected to be moderate compared to normal as temperatures across the Midwest and eastern US will briefly rise into the 80s. The southern US will also see a few degrees of warming, with highs reaching into the mid and upper 90s.

However, a following cooler Canadian weather system will sweep across the central and eastern US by the weekend, carrying showers, thunderstorms and slightly cooler-than-seasonal temperatures. This will bring cooling demand across most of the US to moderate-to-low.

Between September 10th and 16th, cooler weather systems tracking across the northern US will bring comfortable temperatures in the region, reflecting a neutral to slightly-cooler trend. The Canadian weather systems will also push fairly deep into Texas and the Southern Plains, lowering highs to the upper 80s and lower 90s compared to the recent upper 90s and lower 100s. As a result, national cooling demand is expected to noticeably decrease, paving the way for the return of 85+ bcf inventory builds.