Commodities trading outlook: Brent hits fresh four-year low, natural gas swings

Brent crude fell to the lowest level since December 2010 and WTI extended its drop after the International Energy Agency cut its estimate for global oil demand growth this year for the fourth consecutive month to the lowest pace since 2009. Natural gas swung between gains and losses.

On the New York Mercantile Exchange, November US crude fell by 1.62% to $84.35 per barrel by 14:10 GMT, having held in a daily range between $85.60 and $84.22. The contract lost 0.1% on Monday and closed at $85.74, the lowest settlement since December 2012. WTI touched $83.59 on Friday, the lowest since July 2012, and settled last week 4.4% lower.

Meanwhile, Brent for delivery in the same month plummeted 2.63% to $86.55 a barrel on the ICE. Prices ranged between $88.74 and $86.17, the lowest since December 1st 2010. The European crude grade closed 1.46% lower at $88.89 on Monday, also the lowest since December 2010. Brent’s premium to its US counterpart narrowed to $2.20 from Monday’s close at $3.15.

The International Energy Agency said in its monthly report that global oil consumption will climb by only 650 000 barrels per day this year, a downward revision of 250 000 bpd from its prior estimate. This was the IEAs fourth consecutive monthly forecast revision, with projections now slashed in half from Julys 1.3-million bpd growth estimate. The Paris-based agency also said that OPEC will need to supply around 200 000 barrels per day less crude this year and in 2015.

OPEC output, prices

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.

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.

Venezuela’s foreign ministry said on October 10th that the country will seek an extraordinary OPEC meeting to discuss falling prices. Meanwhile, Saudi Arabia was reported to have privately told oil market participants it could be comfortable with a price level $80 per barrel.

Ali al-Omair, Kuwait’s oil minister, said that $76-$77 will probably be a strong area of support because that was the cost of production in the US and Russia. He said for the official Kuwait News Agency yesterday that while producers would like higher prices, there was “no room” to achieve that by cutting output. Algeria’s oil ministry also dismissed a possible reduction in supplies.

Crude oil inventories

Also fanning bearish sentiment, the Energy Information Administration is expected to report on Thursday that US crude oil stockpiles probably rose by 2.5 million barrels to 364.2 million in the seven days through October 10th, the highest in two months, while gasoline and distillate fuel inventories probably shrank. Last week the EIA reported a larger-than-projected jump in crude stockpiles and a gain in the refined products categories which defied anticipations for a drop. Domestic crude production surged to a 28-year high of 8.875 million barrels per day.

Industry group the American Petroleum Institute will release its separate private report on Wednesday.

China optimism

Some support was drawn by optimism a feared Chinese economic slowdown may not come into fulfillment.

Chinas central bank cut an interest rate it pays lenders for the second time this month. The reduction spurred speculations of broad-based monetary easing, which would help small business and public housing.

Meanwhile, a senior official at China’s economic planner said the nation’s investment growth should accelerate in the months to come as the government speeds up infrastructure projects.

Natural gas

Natural gas swung between gains and losses on Tuesday as forecasts calling for cooler-than-usual weather over the central and eastern US lent some support, but the lack of near-freeze temperatures kept gains in check.

Natural gas futures for settlement in November was up 0.10% at $3.920 per million British thermal units by 14:10 GMT on the New York Mercantile Exchange. Prices held in a daily range of $3.955 and $3.902. The power-station fuel added 1.5% on Monday to $3.916 per mBtu, having fallen 4.5% last week.

According to NatGasWeather.com, natural gas demand over the next seven days will be moderate compared to normal. The eastern parts of the country will enjoy mild weather today with temperatures reaching into the upper 70s. The far southern US will remain warmer than usual throughout the week, stoking late season cooling demand for the energy source.

However, a strong weather system will trek across the central and eastern US over the next several days, bringing showers, thunderstorms and below-seasonal readings. After the mercury drops tomorrow, additional reinforcing cool blasts will push overnight lows into the 40s and 30s on Friday and during the weekend, inducing modest heating demand. Nevertheless, those weather systems will not be significant enough to bring widespread and consistent freezing temperatures, leaving the markets supported, but also unable to advance much.

Next week, numerous weather systems with showers, thunderstorms and slightly lower-than-usual temperatures will track across the Midwest and Northeast, and will also push deep into the Southeast. The southern US will continue to gradually cool, with the until-recently widespread highs in the 80s and 90s becoming rarer, easing the need for cooling. Both the southern and western parts of the country will remain near or little above average.

Supply data

This week’s supply data is projected to show a build of around 90 billion cubic feet, compared to the five-year average of 78 billion. If confirmed, this would be the closest net injection to the average since April. Near-term builds are expected to keep narrowing the deficit as average weekly injections begin to decrease after this week’s shoulder season peak.

“We expect gradual gains on builds to continue playing out into early November where weather patterns are marginally cool over the Midwest and Northeast, but far from cold,” analysts at NatGasWeather.com said in a note.