Commodities trading outlook: crude oil and natural gas futures

WTI futures were higher during midday trade in Europe today, while Brent futures were down. The private American Petroleum Institute (API) will post its weekly report on US oil inventories later today, and investors expect more draws. Meanwhile, natural gas futures continued to decline, as cooler weather over top-consumer US scaled back power demand outlooks.

West Texas Intermediate futures for settlement in July traded for $104.67 per barrel at 14:24 GMT on the New York Mercantile Exchange, up 0.25%. Prices ranged from $104.44 to $105.06 per barrel. Yesterday the contract added 1.70%, after on Friday WTI closed relatively unchanged for the week, at $102.71 per barrel.

Meanwhile on the ICE in London, Brent futures due in July stood for a 0.23% drop at $109.74 per barrel at 14:23 GMT. Daily high and low stood at $110.32 and $109.70 per barrel, respectively. Brent’s premium to WTI stood at $5.07, narrowing Monday’s closing margin of $5.58. Yesterday the contract gained 1.27%, after last week the EU benchmark dropped about 0.5%.

US demand outlook

The weekly API report on US oil inventories is due later today, ahead of the official, government report tomorrow. Analysts interviewed by Bloomberg predicted a drop of 1.5 million barrels, while a separate Reuters poll suggested the same figure.

“The inventory report will be a key number,” Michael McCarthy, chief strategist at CMC Markets in Sydney, said for Bloomberg. “Brent is bumping up against a ceiling of $110 a barrel on the charts, while West Texas has got room to move up to about $105.25.”

Last week saw a number of positive reports for the world’s top economy, which accounts for 21% of total oil consumption. Payrolls and unemployment were reported at pre-recession levels, while the services and manufacturing sectors scored much better than expected, elevating outlooks for oil demand.

Later this week more key data is due. Retail sales are expected to post a preliminary 0.4% monthly growth for May, after muted 0.1% increase the previous month. On Friday PPI for May will be revealed, and analysts project a 0.3% gain on a monthly basis and 1.9% year-on-year.

China

China also offered support for crude oil today, as authorities introduced measures to help raise growth to earlier levels. Reserve requirements for banks, who lend to farming and small-to-medium sized companies was reduced.

“China’s rate cut decision is another step towards supporting the domestic economy,” Ric Spooner, chief market analyst at CMC Markets in Sydney, said for Reuters.

Two important economic indicators for the Chinese economy were also reported today. CPI for May stood at 0.1% on a monthly basis, beating forecasts for a third month of deflation, while consumer inflation was at 2.5% on an annual basis, also above expectations. PPI for May was logged at -1.4%, after -2.0% in April. The gauge has not seen a positive reading since February 2012.

Later this week, Chinese industrial production for May will be posted on Friday. Experts suggest a steady 8.8% growth year-on-year, after 8.7% in April. The industrial sector accounts for nearly half of Chinese GDP. Also due on Friday, reports on fixed assets investments and retail sales for May are expected to reveal steady annual growth for both.

Natural gas

Front month natural gas futures, due in July, dropped 1.25% at the New York Mercantile Exchange to trade for $4.587 per million British thermal units at 14:26 GMT. Prices ranged from $4.581 to $4.636 per mBtu. Yesterday the contract dropped 1.38%, though it did reach a monthly high at $4.743 per mBtu, after last week blue fuel futures gained more than 3.5%.

“It’s a cooler pattern emerging of very little cooling demand in the midcontinent,” Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said for Bloomberg. “A broad swath of the U.S. is going to have very light demand this week and possibly into next week.”

U.S. inventories probably expanded by 114 billion cubic feet last week, Tim Evans, energy analyst at Citi Futures in New York, wrote in note to clients today, cited by Bloomberg. The official government report is due on Thursday.

Previously, last week’s log revealed a 119 billion cubic feet (bcf), beating expectations of 116 bcf increase. The injection is the biggest stockpiles had received since June 2009. Stockpiles levels remain 33% below the reading from the previous year, but gradually recover.