Commodities trading outlook: crude oil futures pare losses, natural gas soars

WTI and Brent futures climbed during midday trade in Europe today, but were still well below the last close, as downbeat data from China lead crude to extend the recent slump. Meanwhile, natural gas futures soared as investors saw heat returning to the US.

WTI futures for October delivery on the New York Mercantile Exchange traded at $91.76 per barrel at 13:29 GMT today, down 0.55% for the day, while prices had ranged from $90.63 to $92.37 per barrel. The US benchmark lost ~1% last week.

Meanwhile on the ICE in London, November Brent stood at $97.52 per barrel, down 0.45%, daily prices between a two-year low of $97.02 and $97.88 per barrel. The contract’s premium to November WTI narrowed to $6.55. The European brand dropped ~3.7% last week.

Several key downbeat China gauges weighed on crude, as traders price in a lower demand outlook for the world’s second-top oil-consuming economy. Industrial production, which accounts for about half of Chinese GDP and is a major driver for domestic oil consumption, logged 6.9% annual growth, the lowest in almost six year, nosediving after last month’s 9.0% rate and falling well-short of expected 8.8%.

Meanwhile, retail sales and fixed asset investments were also recorded lower than expected, adding 11.9% and 16.5%, respectively.

“Economic growth in China is one of the key drivers of world growth and generally of oil demand,” Ric Spooner, chief market analyst at CMC Markets, said for Reuters. “It seems likely that (oil) demand growth wont keep up with the growth in supply capacity.”

Last week the IEA lowered its forecasts for oil demand growth for this year and 2015 by 150 000 and 100 000, respectively, to 900 000 in 2014 and 1.2m next year.

“The recent slowdown in demand growth is nothing short of remarkable,” the agency said.

IEA’s forecast cut comes as a separate US outlook proposed growing supplies, further pressuring crude. The Energy Department’s statistics arm, the Energy Information Administration, said oil prices next year will be lower as US crude output reaches a 45-year peak.

Meanwhile, Saudi Arabia said it is not planning a cut in output to accommodate a higher global price for crude, dispelling speculation that such a move will come to support prices soon. The country did, however, report a slowdown in production for August, though growing exports from Iraq and Libya more than accounted for it.

OPEC also lowered the projected volume of crude it would market next year, as global demand was seen slowing, supporting IEA’s outlook.

Natural gas

Front-month natural gas futures for settlement in October traded at $3.887 per million British thermal units (mBtu), up 1.92% for the day. Prices ranged from $3.839 to $3.952 per mBtu. The contract added ~1.8% last week.

Natural gas markets were scared into a moderate rally last week, as a cool Canadian system and an initially threatening-looking tropical system over the Gulf sparked bullish bids. Both systems turned out to be short-lived, though, and traders now eye several weeks of comfortable temperatures, set to help into several triple-digit weekly inventory builds.

“Weather patterns after last week’s cool blast should play out to be quite bearish,” analysts at NatGasWeather.com wrote in a note to clients today. “With widespread 70s and 80s setting up over a majority of the country, massive 100+ Bcf builds should be expected for many weeks to come.”

A mild cool blast will track through the Great Lakes and into the US Midwest and Northeast this week, keeping temperatures comfortable, killing much of any cooling demand and probably inducing some very light heating. Meanwhile, the South will be warming as high pressure builds, which will eventually break into the North, heating the Midwest and Northeast later on. The West Coast is experiencing a very hot few days ahead of moderate temps coming back by the weekend. Overall cooling demand across the US will be moderate-to-low for the next few days, with insignificant heating.