Commodities trading outlook: crude oil futures slide on Japan recession, OPEC; natural gas jumps on weather

Both West Texas Intermediate and Brent crude benchmarks fell on Monday amid fears of slowing global demand after Japan unexpectedly dipped into recession. Market players also eyed diplomatic developments within OPEC, although a production cut remained unlikely. Natural gas rose for a second day as forecasts called for cold weather across the central and eastern US over the next several days.

On the New York Mercantile Exchange, WTI crude for delivery in January slid 0.88% to $75.15 per barrel by 13:38 GMT, having shifted in a daily range of $76.16-$74.75 a barrel. The US crude benchmark jumped 2.24% on Friday, the most since early-September, but still marked its seventh straight weekly decline, the longest losing stretch since March 1986.

Meanwhile on the ICE, Brent for delivery in the same month fell 1.11% to $78.53 a barrel. Prices shifted in a daily range of $79.60-$77.94 a barrel. The European crude benchmark surged 2.48% on Friday to $79.41. Brent traded at a premium of $3.38 to its US counterpart, down from Friday’s close at $3.59.

The oil market received a boost on Friday amid speculations that OPEC members have intensified diplomatic talks to address the recent price rout. Libya’s Prime Minister Abdullah al-Thani and Iraqi President Fouad Masoum met separately with Saudi Arabia officials last week, while Venezuela’s foreign minister held talks in Algeria and Qatar.

Different OPEC representatives will continue to meet this week, but the group’s leading producers are not expected to abandon their commitment to leave oil pricing subject only to market forces.

The market received a heavy blow on Monday after data showed that Japan, the worlds third-largest oil consumer, slipped into recession following two straight quarters of contraction. According to a preliminary estimate, Japan’s economy shrank by an annualized 1.6% in the three months through September, confounding analysts’ estimates for a 2.1% growth. Moreover, the previous quarter’s 7.1% contraction was revised down to 7.3%.

Quarter-on-quarter, the Asian nation saw its GDP growth fall 0.4%, following a downward-revised 1.9% contraction in the preceding period.

Michael Hewson, market analyst at London-based CMC Markets Plc, said for Bloomberg: “After Friday’s brief rally it looks like normal service has been resumed today after those disappointing Japanese GDP numbers. Slowing demand there, given the country is a big oil importer, doesn’t bode well for demand.”

The International Energy Agency said last week that the oil market has entered a whole new era and the return to high prices was unlikely to happen soon, citing slowing Chinese growth and oversupply led by increasing US shale oil output.

The Paris-based agency said that oil demand is projected to fall 1% to 92.6 million barrels per day in the first quarter of 2015 on a quarterly basis, set to push prices even lower.

Record US output

The Energy Information Administration reported on Thursday that crude production in the United States surged to a record 9.063 million barrels per day in the week through November 7th, 91 000 bpd more than during the previous week.

Limited support was drawn as the EIA reported that US crude oil stockpiles unexpectedly fell by 1.7 million barrels to 378.5 million, defying analysts’ projections for a 1.1-million build. However, supplies at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, rose by 1.7 million barrels to 22.5 million, the highest since May 16th.

Total motor gasoline inventories rose by 1.8 million barrels to 203.6 million, exceeding forecasts for a 0.35-million gain, while distillate fuel stockpiles, which include diesel and heating oil, dropped 2.8 million barrels, outperforming a projected 1.5-million decline.

Natural gas

Natural gas rose for a second day on Monday as forecasts called for cold weather across the central and eastern US over the next several days, implying high demand for the heating fuel. Market players looked past this weekend’s expected warm-up for signs of new cold blasts.

Natural gas futures for settlement in December rose 2.66% to $4.127 per million British thermal units by 13:42 GMT, having shifted in a daily range of $4.188-$4.117. The energy source rose 1.08% on Friday to $4.020 but settled the week 9.1% lower, the largest weekly drop since February, pressured by extended forecasts predicting mild weather.

According to NatGasWeather.com, natural gas demand in the US will be high compared to normal during the next seven days, with a neutral to slightly colder weather trend for the November 23-29 span.

Temperatures over the central US will once again be pushed to 20-30 degrees Fahrenheit below normal on Monday as a fresh cold blast hits the region. It will also send overnight lows across Texas to between 10-20 degrees and the mid-20s for the Southeast on Tuesday. The new cold system will have a stronger effect on the Midwest and Northeast as opposed to last week’s blast, with lows falling into the teens.

However, a long awaited Pacific jet stream will infiltrate the western US on Friday, NatGasWeather.com said, carrying mild weather conditions. The stream will bring a series of weather systems that will track across most of the US, allowing readings to moderate to normal and slightly above normal over most of the country this weekend, significantly reducing national heating demand.

The following weather systems may turn colder, with periods of rain and snow, and may lead to seasonal or slightly lower temperatures during the Thanksgiving week, particularly around November 28-29. The western parts of the country, nevertheless, are expected to remain warmer than normal.

Supplies

The Energy Information Administration reported on Friday that US natural gas inventories rose by 40 billion cubic feet (bcf) in the seven days ended November 7th. This compared to analysts’ projections for a jump of around 36 bcf and exceeded both the five-year average and year-ago gains of 16 bcf and 22 bcf, respectively.

Total gas held in US storage stood at 3.611 trillion cubic feet, narrowing its deficit to the five-year average of 3.848 trillion to 6.2%. Inventories were 5.7% lower compared to last year’s 3.831 trillion cubic feet during the comparable period.

Due to last week’s much colder than usual weather, this Thursday’s EIA report is expected to show the first weekly withdrawal since the beginning of the replenishment season in April. Market players will keep a close eye on forecast developments beyond this weekend’s warm-up, especially for the beginning of December’s yet unclear data, for initial estimates on inventory numbers.