Commodities trading outlook: crude oil futures slide, natural gas swings

Both West Texas Intermediate and Brent crude benchmarks extended last week’s drop after Iraq followed Saudi Arabia and Iran into cutting its list prices to Asia to the lowest since January 2009. Speculators slashed their net-long positions on WTI by the most in five weeks. Better-than-expected trade data from China lent some support to oil prices, albeit having an overall muted effect.

On the New York Mercantile Exchange, US November crude traded at $84.77 per barrel at 14:18 GMT, down 1.22% on the day, having shifted in a daily range between $85.63 and $84.07 a barrel. The contract touched $83.59 on Friday, the lowest since July 2012, and settled the week 4.4% lower.

On the ICE, Brent for delivery in the same month fell to $87.74 earlier in the session, the lowest since December 2010, and stood at $88.43 a barrel at 14:18 GMT, down 1.97% on the day. The European crude benchmark settled at $90.05 on October 9th, the lowest since July 2012, and closed the week 1.2% lower at $90.21 on Friday, its third straight weekly decline. Brent traded at a premium of $3.66 to its US counterpart, down from Friday’s settlement at $4.39.

Oil prices received some support on Monday after data by China’s customs administration showed the Asian nation’s exports rose in September at the fastest pace since February 2013, buoyed by imports for processing and re-exports of goods such as the iPhone 6. Analysts had projected an annualized export growth of 11.8%, compared to the preceding month’s 9.4% jump.

Imports rose by 7.0%, the most since February, defying projections for a 2.7% contraction and compared to a 2.4% decline a month earlier. Chinese crude imports alone surged 9.5% from August. The country’s trade surplus narrowed to $31 billion from last month’s $49.83 billion, exceeding expectations for a drop to $41 billion.

OPEC price cuts

OPEC output surged by 402 000 barrels per day to 30.47 million bpd in September, the group said in its monthly report on October 10th. Its top producer, Saudi Arabia, pumped 9.074 million barrels per day, up from 9.597 million in August. The Energy Information Administration reported on Wednesday that US crude production surged to a 28-year high of 8.875 million barrels per day in the week ended October 3rd, while preliminary data by Russia’s energy ministry showed that Russian output rose to 10.61 million bpd in September, including crude and condensates, which was only 0.3% below a post-Soviet record set in January.

Members of the Organization of the Petroleum Exporting Countries will convene in Vienna on November 27th to decide on the group’s crude quotas, with market players broadly expecting a reduction in output.

However, such an agreement might prove elusive as major producers have already signaled their reluctance to lose market share and instead responded to the bear market by cutting delivery prices to Asia.

Iraq, OPEC’s second-biggest producer, followed the example of Saudi Arabia and Iran and will sell its Basrah Light crude to Asia at the biggest discount since January 2009. This comes after the state-run National Iranian Oil Co. cut its prices for Asian customers last week, while a week earlier Saudi Arabia trimmed the cost of its Arab Light crude for Asia to the lowest since December 2008. The series of price cuts to Asia fueled speculations of a possible price war between the group’s members.

Venezuelas foreign ministry said on October 10th that the country will seek an extraordinary OPEC meeting to discuss falling prices.

According to CNBC, Saudi Arabia has privately told oil market participants it could be comfortable with a price level $80 for oil. Meanwhile, Ali al-Omair, Kuwait’s oil minister, said on Sunday that $76-$77 will probably be a strong area of support because that was the cost of production in the US and Russia.

Natural Gas

Natural gas rose on Monday as weather forecasts called for some pockets of cool air across the US but hovered near Thursday’s 1-month low as the lack of freeze in the high-consumption states kept bearish sentiment in control of the market.

On the New York Mercantile Exchange, November natural gas traded at $3.885 per million British thermal units at 14:18 GMT, up 0.67% on the day. Prices held in a daily range of $3.899 – $3.820. The power-station fuel settled at $3.859 on Friday, closing the week 4.5% lower.

According to NatGasWeather.com, heating demand over the next seven days will be moderate compared to normal. A strong weather system will trek across the central and eastern US over the next several days, bringing showers, thunderstorms and below-normal temperatures. It will even push into the South, carrying heavy showers and thunderstorms.

As previously projected, the eastern US will set off the week with above-average temperatures reaching into the lowers 70s. Once the aforementioned weather system tracks across the Midwest and Northeast, followed by additional cool blasts, overnight lows in the regions will drop into the 30s and 40s, inducing moderate heating demand. However, each of these weather systems will not be significant enough to bring widespread freezing temperatures, thus limiting heating demand.

Meanwhile, above-average readings across the far southern US will push highs into the upper 80s, stoking late season cooling demand. The weather system currently hovering over the central US will bring some cooling deep into Texas, but due to its fast-moving nature, temperatures are bound to go back up almost immediately.

Next week, a large number of weather systems will bring showers and thunderstorms, maintaining temperatures across the Midwest and Northeast at below-seasonal levels. Cooler air may also push deep into the Southeast. Meanwhile, the southern and the western parts of the country, including the plains, will remain at or little above normal temperatures.

Supply data projections

Prices slid to the lowest in a month on Thursday after the Energy Information Administration reported that US natural gas inventories rose by 105 billion cubic feet (bcf) in the week ended October 3rd, largely in line with analysts’ expectations for a jump by 105-110 bcf. This was the 25th straight weekly above-average build.

This week’s supply data is projected to show a build of 84-89 billion cubic feet, which, if confirmed, would be the closest net injection to the average in 26 weeks.

“It’s important to note average weekly builds will start dropping off next week as the second shoulder season comes to an end and its imperative weather patterns trend colder to keep pace,” NatGasWeather.com analysts said in a note. “Right now this doesn’t look likely to happen, meaning additional gains on deficits should be expected going into early November after this week.”