Commodities trading outlook: crude oil and natural gas futures add

WTI and Brent futures were in bull territory during midday trade in Europe today, supported by positive China factory data, as investors await key readings on US oil stocks. Meanwhile, natural gas futures held on to earlier gains, despite bearish outlooks for the following days and weeks.

WTI futures for November delivery on the New York Mercantile Exchange traded at $91.45 per barrel at 12:44 GMT today, up 0.64% for the day. Prices had ranged from $90.58 to $91.73 per barrel. The US benchmark dropped 0.85% on Monday after clocking minor gains last week.

Meanwhile on the ICE in London, November Brent stood at $97.08 per barrel, up 0.11%, with prices between $96.90 and $97.59 per barrel. The contract’s premium its US counterpart narrowed to $5.63. The European brand lost 1.5% on Monday, with the November future recording a two-year bottom at $96.38.

HSBC and Markit posted their preliminary figure on Chinese manufacturing PMI late yesterday, logging at 50.5, above expectations also above the “50.0″ mark, signaling the sector has expanded in September. Factories are the bulk contributors to Chinese industrial output, which generates about half of the country’s GDP. At the same time, however, physical goods, such as those produced in factories, need to be transported, hence the manufacturing PMI figure is a key leading gauge for Chinese oil demand.

The second-top economy in the world is also the second-top oil consumer, and will account for 11% of all demand this year, the International Energy Agency (IEA) says.

Investors now eye upcoming data on Eurozone manufacturing PMI figures. French factories are expected to log another month of significant contraction at 47.0, while Germany will also probably log below-par at 51.2. The Bloc-wide reading is projected at 50.5, signaling fragile overall growth for the world’s top single-currency economy.

Key data on US demand and supply is also due today, with the industry-funded American Petroleum Institute (API) reporting its weekly readings on US oil inventories.

US inventories, Libya

API collects data on a voluntary basis and its figures could be highly skewed, though they are the leading gauge ahead of the official Energy Information Administration (EIA) weekly report on Wednesday.

A Bloomberg survey projected crude stocks had added 0.75 million barrels in the week through September 19, while gasoline was down 0.3m and distillates, a category which includes diesel and heating fuel, grew by 0.35m.

Meanwhile, Libya reopened production at the Sharara oil field, after fighting between rival militias closed it last week. The news depressed crude to near multi-year lows yesterday, as it heralded the return of high-quality Libyan oil to the already over-supplied market.

Talks of a cut in output to be discussed and implemented by OPEC offered background support to crude last week, as investors sought cues as to the intentions of the world’s top oil-exporting body in regards to prices falling below the $100 benchmark. Many nations have set the $100 per barrel as a budgetary minimum, and prices lingering below the threshold hurts their public, and private, finances.

OPEC official moved to dispel speculation about an imminent output cut, but the group did lower its marketable oil expectations for 2015, signaling a decrease in production could follow as to meet market demand.

Natural gas

Front-month natural gas futures for settlement in October traded at $3.888 per million British thermal units (mBtu), up 0.99% for the day. Prices ranged from $3.832 to $3.903 per mBtu. The contract added 0.34% on Monday.

“We have been calling for one more seasonal low before the winter rally begins. Prices will have the opportunity to drop and again test $3.75,” analysts at NatGasWeather.com wrote in a note to clients today. “Patterns look very favorable for 100+ Bcf builds after this Thursday’s comes in just under.”

The natural gas market is in the midst of the so-called Fall Shoulder season, which is the key period when the summer heat-induced cooling is diminishing and the winter cold-heating is still not in bulk. This unbalance allows for massive builds in natural gas inventories, and the injections usually trump much of any bullish sentiment.

The comfortable temperatures of the past week hurt natgas demand, and the US Energy Information Administration (EIA) will probably report close-to-100 billion cubic feet of natural gas were added to stockpiles. If so, it would be the 23rd straight bigger-than-average weekly build, and will narrow the deficit to the 5-year average total to near 10%, after the record 55% deficit in March.

Last week the EIA reported the build at natural gas inventories for the week ended September 12th to also be quite larger than expected at 90 Bcf. This compared to a 48-bcf build a year earlier and the five-year average gain pace of 71 billion cubic feet, and also narrowed the gap to the 5-year average to just 13.3%.

A concern to investors and a drive for natgas bulls is a massive reservoir of cold Canadian air, currently trapped over northern Canada. The cold creeps southwards, however, heralding the arrival of winter as it goes. The US will remain isolated from the cold air for at least two more weeks, weather patterns show, but by mid-October the way to the US could be open, signaling a big increase in heating could be imminent.

“We are concerned much colder weather patterns are not far off,” NatGasWeather.com wrote. “Once the real cold air begins its march toward the US, it will be time to get rid of all bearish expectations and let the fear on another brutally cold winter begin to drive prices higher.”

US weather outlook

Weather patterns project the high-pressure over the southern US will break into the Northeast and Midwest over the next few days, warming the regions to comfortable. The South and West also set off the week with somewhat warm temps, though incoming Pacific systems will be bringing lower temps by later this week. Overall, temperatures will be quite pleasant and comfortable, with little of either heating or cooling.

“The regions that matter most to the nat gas markets will experience [comfortable] highs in the 70s and 80s from now through early October,” NatGasWeather.com analysts wrote. “We expect bearish weather headwinds to remain strong for a little while longer, but cold patterns [could] begin to look more promising after October 5th.”