Commodities trading outlook: crude oil and natural gas futures

WTI futures were stable today, while Brent futures were supported by battles in Ukraine. Earlier, a bullish factory report from China boosted positive sentiment for the world’s second oil consumer. However, prices could hardly go further upwards, after the US weekly inventories report lifted prices to what some analysts called “preposterous levels” yesterday. Meanwhile, natural gas futures traded lower ahead of the government report on supplies in the US. Yesterday a huge gas deal between China and Russia was signed, pressuring the blue fuel.

West Texas Intermediate futures for settlement in July traded for $103.99 per barrel at 13:22 GMT on the New York Mercantile Exchange, down 0.08%. Prices ranged from $103.67 to $104.20 per barrel. Yesterday the US benchmark rose by 1.70% as the EIA report revealed inventories, reaching a monthly high of $104.29 per barrel. So far this week the contract has gained 2.47% with its main support from dwindling stockpiles ahead of driving season.

Meanwhile on the ICE in London, Brent futures due in July recorded a 0.17% decline to trade for $110.74 per barrel at 13:12 GMT. Daily high and low stood at $110.79 and $110.29 per barrel, respectively. Brent’s premium to WTI stood at $6.75, widening Wednesday’s closing margin of $6.48. Yesterday the European brand added 0.78%, reaching an 11-week high of $110.73 per barrel. So far this week, the contract has’s price has increased by 0.72% with support from geopolitical developments in Europe and Africa, as well as US supplies.

US supplies

“I find $104 WTI a bit preposterous given how ample supplies are but I wouldn’t recommend standing in the way of this,” said for Bloomberg Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “There’s still ample crude.”

The weekly Energy Information Administration report on oil inventories in the US for the week ended May 16 was released yesterday. Crude oil supplies were shown to stand at 391.3 million barrels, recording a 7.226 million barrel decrease from last week, when stocks had grown by 947 000 barrels. On Tuesday the private American Petroleum Institute (API) suggested a 10 million barrel decline in inventories. A Bloomberg survey expected stockpiles to stand as they were, while a Reuters poll projected a 1 million increase.

Domestic production was reported at 8,434 million barrels per day (bpd), adding 6 000 bpd on the previous standing. Last week domestic output had grown by a further 78 000 bpd. Imports declined by 658 000 bpd to record 6.469 million bpd. Last week imports had grown by 242 000 bpd.

Supplies at Cushing, Oklahoma, the delivery point for WTI, were at 23.2 million barrels, dropping a further 200 000 from last week, when they had declined by 0.6 million. Meanwhile, crude in storage at PADD3, which is the Gulf Coast, were at 210.0 million, dropping 5.7 million since last week’s report, when hubs at the Coast had added 2.3 million barrels.

Motor gasoline supplies stood at 213.4 million barrels, which is a growth of 0.970 million since the previous report, while the API reported a 135 000 gain on Tuesday. Last week a 0.772 million decline was recorded. API . Distillates inventories grew by 3.399 million to stand at 116.3 million, while API suggested a 1.360 million increase. Last week distillates lost 1.124 million barrels. Refinery utilization rate logged at 88.7%, which is a slight decrease from the previous reading of 88.8%. Gasoline production averaged 9.592 million barrels per day, down 14 000 bpd since last week, when a 614 000 bpd increase had been recorded. Distillates production was at 5.002 million bpd, which is a weekly growth of 91 000. Last week distillates production slowed by 128 000 bpd.

Ukraine crisis, China

At least 10 Ukrainian soldiers have been killed in attacks by pro-Russian rebels near Donetsk, the BBC reported, in the deadliest battle the conflict has seen so far. A further 30 soldiers were injured in the assault.

Ukraine is preparing to hold a presidential election on May 25, and in the run-up to the vote all developments will be closely watched. Kiev hopes the election will soften the conflict, though the eastern rebels have long since declared they will boycott the vote, and will try to incorporate the separatist regions in the Russian Federation.

China’s manufacturing PMI for May was announced by HSBC and Markit earlier today. The preliminary data put the figure at 49.7, well above expectations of 48.1, though still below the 50.0 contraction/expansion mark. April had recorded a significant slowdown in factory activity, with HSBC logging 48.1.

China accounts for about 11% of total oil consumption, and reported a 6.8% GDP growth for the first three months of 2014, which is the worst figure in 6 quarters. The Chinese government expressed readiness to hasten economic reforms, in order to recover previous growth figures.

Elsewhere, Libya is also offering some support, as fighting in Africa’s largest oil reserves holder left at least 100 dead since Friday, the BBC reported.

The country will hold a general election on June 25, as authorities attempt to quell unrest.

Libya’s output was logged at 210 000 barrels daily as of last Thursday, before fighting began, far below the 1.4 million bpd a year ago.

Natural gas

Front month natural gas futures, due in June, fell by 0.22% at the New York Mercantile Exchange to trade for $4.463 per million British thermal units at 13:24 GMT. Prices ranged from $4.450 to $4.503 per mBtu. Yesterday the blue fuel lost 1.74%, while for the week so far the contract has gained 1.38%.

Gazprom, 50.01% of which is owned by the Russian Federation, and China’s National Petroleum Corporation signed a gas deal yesterday, which is estimated to be worth $400 billion. The contract is for the delivery of more than 1 trillion cubic meters (over 35 trillion cubic feet) of natural gas over 30 years starting 2018, according to Gazprom’s CEO Alexei Miller.

US weather report

According to AccuWeather.com, New York will be cloudy and might see rains and thunderstorms today and tomorrow. Temperatures will range 56-78 degrees Fahrenheit. Starting on Saturday readings will rise, reaching into the 80s at the start of next week, which is several degrees above average.

Boston will be quite cooler than normal today and on Friday, with temperatures no higher than 58, 10 degrees below usual highs. Come Saturday the heavy clouds will give way to the Sun, and temperatures will rise up to the high 60s. Next week will probably be normal in terms of temperature, though there might be some heat both at the start and end.

Chicago is set for some cool, with readings ranging low 50s to mid 60s, slightly below average, before Sunday brings a sizable warm up, with highs into the upper 70s. Temperatures next week will follow suit, with readings a few degrees above normal.

Los Angeles will also be cooler up to Sunday, with some clouds and a possible thunderstorm. Temperatures will be no higher than 72-73 Fahrenheit, before next week readings rise up to reach the low 80s, several above average.

According to a Bloomberg survey, natural gas stockpiles have increased by 103 billion cubic feet for the week through May 16, while other analysts predict 100-102 billion gain. The official Energy Information Administration report is due later today.