Commodities trading outlook: crude oil and natural gas futures

WTI futures remained pressured in the red during midday trade in Europe today, while Brent shied into bull territory with minor gains on OPEC supply outlooks. Meanwhile, natural gas futures were hovering below $4 as traders wait on EIAs storage figures, due on Thursday.

WTI futures for October delivery on the New York Mercantile Exchange traded at $94.52 per barrel at 11:28 GMT today, down 0.38% for the day, while prices had ranged from $94.43 to $95.06 per barrel. The US benchmark added 2.1% on Tuesday, after a further 0.8% gain on Monday.

Meanwhile on the ICE in London, November Brent stood at $99.21 per barrel, up 0.16%, daily prices between $98.67 and $99.61 per barrel. The contract’s premium to November WTI widened to $5.68. The European brand added 1.2% yesterday.

Yesterday oil prices rallied behind a statement of OPEC’s secretary general, that the oil-exporting cartel could curb production to 29.5m barrels daily in 2015, bringing it in line with the group’s expectations of market demand.

“The first official signs that OPEC is starting to feel a little uneasy about the current market environment and the price of oil are emerging,” David Wech, an analyst at consultants JBC Energy GmbH in Vienna, said in a report cited by Bloomberg.

Saudi Arabia cut production by about 0.4m barrels daily in August, though it has had little effect on exports.

Traders have been speculating about a OPEC possibly shutting spare production in order to limit global supply and support crude prices against the recent slump. OPEC oil ministers, however, soon dispelled much of the speculation, saying that price fluctuations are normal and that no action is needed, adding that they believe prices will rebound as winter heating demand kicks in.

“Even if OPEC does cut their supply of crude, we do not expect to see drastic changes,” Phillip Futures said in a note cited by Reuters. “This increase in crude prices would not last and would likely dampen again by the end of the week.”

Investors now eye upcoming official US oil inventories data, due later today. The Energy Information Administration (EIA)’s weekly readings are usually a trigger for intense trade and big price movements, as it indicates the supply-demand balance in the world’s top oil-consuming economy, where 21% of all oil goes.

A Bloomberg survey suggests crude stocks fell by 1.5m barrels, while gasoline dropped 0.4m and distillates, a category which includes diesel and heating fuel, added 0.8m. A Reuters poll projects a 1.8m draw for crude inventories.

The industry-funded American Petroleum Institute (API) reported its own, separate readings on US oil stocks yesterday. The group read a 3m-barrel build for crude inventories and 1m for distillates, while gasoline stocks were drawn by 1.2m barrels.

Demand outlook

On a broader scale of demand in the economy, several key figures will be reported today. Crucial CPI readings for the US will be posted, and analysts expect robust figures, after PPI readings met expectations yesterday, strengthening outlooks of an earlier-than-previously-expected US rate hike. The US’ monetary policy body will announce any decisions from its September meeting today, which could hint towards a stronger dollar.

A pricier greenback would be bearish for oil, as it would increase its cost for other currencies, while also boosting demand outlooks in the top-consumer.

Meanwhile, Europe, which consumes about 14% of all oil, has also clocked in its fair share of bearish sentiment with a plethora of negative data. The European authority has already intervened with a central lending rate cut to 0.05%, the lowest ever, and the launch of a €3tn QE program. CPI figures posted earlier today were the last before the effects of ECBs accommodation are to be felt, and, as expected, logged another month of disappointing 0.4% annual consumer inflation.

Previously, China, which accounts for 11% of total oil demand, posted the latest in a string of downbeat economic data, with industrial production for August logging the slowest annual growth in almost six years. Below-par data on retail sales, investments and CPI had also weighed on Chinese outlooks, though also spurring speculation that authorities will intervene more heavily to stimulate faltering growth.

Natural gas

Front-month natural gas futures for settlement in October traded at $3.987 per million British thermal units (mBtu), down 0.20% for the day. Prices ranged from $3.960 to $3.997 per mBtu. The contract added 1.63% yesterday and a further 1.92% on Monday.

Natural gas extended a gains on Tuesday, on a rally that analysts thought had been induced by an incident on a pipe in the US. An ominous Canadian system set to track through the US next week supported against a rebound, however, traders seeing it could potentially tap into much colder Canadian air before sweeping south.

“We remain marginally bearish but with a very cautious eye looking at potentially the first signs of truly cold weather patterns,” analysts at NatGasWeather.com wrote in a note to clients today. “If prices continue to find support in the face of bearish weather headwinds and large builds, then we need be prepared the markets likely won’t make another low.”

The system now looks less threatening, and prices failed to breach the key $4 resistance, which they tested twice this week. Early winter hype, however, kept any big recoils safely away, and trading kept in a price range.

“There’s a lot of hype for another brutally cold winter over the eastern US,” NatGasWeather.com analysts wrote. “But if winter fails to deliver, we will be swimming in nat gas sooner than later.”

Thursday will probably offer a healthy amount of market direction, as the US will report the weekly natural gas inventories build. The log usually triggers intense trade, with even small deviations from expected builds resulting big moves in either direction. Analysts expect a close-to-100Bcf build be reported this week, which would be the 22nd straight bigger-than-average injection.

US weather outlook

A mild cool blast continues tracking through the Great Lakes and into the US Midwest and Northeast, keeping temperatures comfortable, killing much of any cooling demand and probably inducing some very light heating in the next few days. Meanwhile, the South will be warming as high pressure builds, which will eventually break into the North, heating the Midwest and Northeast later next week. 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.

“By this weekend, much of the country will be experiencing temperatures in the mid-70s to mid-80s and very comfortable overnight lows,” NatGasWeather.com analysts wrote.