Commodities trading outlook: crude oil slides amid ample supply, natural gas drops on cold ease

Both West Texas Intermediate and Brent benchmark crudes hovered near the lowest in years amid a strong dollar and expectations for a sixth straight weekly build in US crude supplies. Falling OPEC output in October provided some support, but only to a limited extent, as the group is broadly expected to retain its current production target at a November 27 meeting in Vienna. Natural gas fell on forecasts for warmer weather over the northern US later this month.

December US crude fell 0.53% to $77.53 per barrel by 15:18 GMT, having shifted in a daily range of $77.62-$76.86 a barrel. The contract rose 0.7% on Tuesday to $77.94 a barrel.

Meanwhile on the ICE, Brent for delivery in the same month slid 0.70% to $81.10 a barrel. Prices shifted between $81.53 and $80.79 during the day. The European crude benchmark fell 0.81% to $81.67 on Tuesday, the lowest close since October 2010, having earlier fallen to $80.46, the weakest level since September 2010. Brent traded at a premium of $3.57 to its US counterpart, down from yesterday’s close at $3.73 which was the narrowest in three weeks.

Oil prices drew some support after OPEC said in a monthly report that it pumped an average of 30.253 million barrels of oil per day in October, down 226 400 barrels from a month earlier. Saudi Arabia, the group’s leading producer, saw its output slide by 69 900 barrels per day to 9.603 million bpd, the lowest in six months.

However, OPEC said it sees signs of global economic recovery and reaffirmed its forecast for global demand and the amount of crude it will need to supply this year and the next. Worldwide consumption will jump by 1.19 million bpd to 92.38 million next year, but members of the group will need to supply an average of 1.0 million bpd less compared to October’s production level, or 29.2 million.

The 12 member countries are not expected to cut output at their meeting in Vienna scheduled for November 27th. Saudi Arabia and Kuwait have underscored their reluctance to pump less, while Libya, Venezuela and Ecuador have called out for decisive action to cushion the market’s recent steep fall.

Angola’s Deputy Oil Minister Anibal Octavio da Silva said yesterday that the Organization of the Petroleum Exporting Countries is undecided on a production cut, while Kuwait Oil Minister Ali Al-Omair said in Abu Dhabi on November 10th that the group won’t trim its collective crude production target at the upcoming meeting.

Ric Spooner, chief market analyst at Sydney’s CMC Markets, said for CNBC: “The consensus view is OPEC won’t take any action, or if it does, not big enough or sufficiently definitive to have too much impact on prices.”

Libya disruptions

Supply disruptions in Libya, holder of Africa’s biggest crude reserves, lent minor support. The country’s Hariga port remained blocked by a walkout over wages, leaving offline a capacity of 120 000 bpd, although negotiations to resolve the issue were ongoing, an official said yesterday. The El Sharara oilfield also remained closed.

However, a strong dollar and expectations for a yet another build in US crude oil inventories continued to drag on the market. The US dollar recently rallied to the highest in almost 4-1/2 years amid speculations the Federal Reserve might raise interest rates faster than anticipated as the US economic recovery remains robust and on track.

Meanwhile, supply data on Wednesday and Thursday are expected to show that US crude supplies rose for a sixth consecutive week in the seven days through November 7th. Stockpiles probably jumped by 1.1 million barrels to 381.3 million last week, the highest since July, while gasoline inventories likely gained 350 000 barrels. Distillate fuel supplies, which include diesel and heating oil, probably declined by 1.5 million barrels.

Industry group the American Petroleum Institute will release its separate report at 21:30 GMT today. API’s statistics, however, are deemed less popular than EIA’s numbers as they are based on voluntary information from operators of pipelines, refineries and bulk terminals, while the government requires reports be filed with the EIA.

The Energy Information Administration reported last week that US crude oil stockpiles rose by 0.5 million barrels in the seven days through October 31st to 380.2 million barrels. Refinery utilization rates picked up to 88.4% from 86.6% a week earlier but US crude production inched up to 8.972 million barrels per day, reaching the highest on record since January 1983.

Natural gas

Natural gas continued to accumulate losses for a third consecutive day and drift further from a recently-hit four-month high on speculations of incoming warmer weather over the northern U.S. later this month.

On the New York Mercantile Exchange, natural gas for delivery in December lost 1.20% to $4.196 per million British thermal units by 15:18 GMT. Prices ranged between $4.143 and $4.222. The contract fell 3.56% on Monday to $4.255 per mBtu, its first loss since October 27th, followed by a 0.19% drop on Tuesday.

According to NatGasWeather.com, natural gas demand in the U.S. over the next seven days will be high and at times very high, compared to normal, with a neutral weather trend for the November 19-25 time span.

A strong arctic blast continues its reign over the north-central U.S., holding temperatures below freezing levels. Light snow accumulation is expected to form alongside the cold front and over the eastern slopes of the Rockies, with overnight temperatures, including the northern Plains, projected to reach single digit numbers or below the zero mark. Over the Midwest and the interior Northeast temperatures will drop to 10s and 20s.

The eastern U.S. coastline will enjoy a couple more days of mild weather, NatGasWeather.com reported, before the colder air arrives later this week. By Saturday, with the exception of the southwestern U.S., colder than normal temperatures will affect the entire country.

Another strong cold blast is expected to arrive into the northern U.S. early next week, bringing below-normal temperatures and areas of snowfall. Periods of colder readings can occur in the southern U.S. as cold blasts push their way through the U.S. Conversely, the western U.S. will reach normal or slightly better temperatures as high pressure dominates over the region.

However, the colder weather systems are expected to retreat back to the Canadian border during the next weekend, as milder weather coming from the Pacific Ocean may flow into the northern U.S.

Supplies

As of October 31st, total gas held in US storage stood at 3.571 trillion cubic feet, narrowing its deficit to the five-year average of 3.832 trillion by 1.4% to 6.8% from a week earlier. Gas stockpiles were 6.2% below year-ago levels.

This week’s build is expected to probably be the last for the year that would provide a gain on deficits, with an early estimate at the high 30s bcf. Inventories rose by 22 billion cubic feet during the comparable period a year earlier, while the five-year average gain is 16 bcf.