Commodities trading outlook: crude oil and natural gas futures

WTI and Brent futures were slightly higher during afternoon trade in Europe today, as the US posted weekly oil inventories supply levels. Later in the week, several key indicators for top oil-consuming economies are due. Meanwhile, natural gas futures were also higher, ahead of the US gas inventories levels report, due tomorrow.

West Texas Intermediate futures for settlement in July traded for $104.53 per barrel at 14:47 GMT on the New York Mercantile Exchange, up 0.17%. Prices ranged from $104.25 to $104.79 per barrel. Yesterday the contract dropped 0.06%, though it reached a three-month high at $105.06 per barrel, after on Monday WTI closed for a 1.70% gain.

Meanwhile on the ICE in London, Brent futures due in July stood for a 0.31% gain at $109.86 per barrel at 14:45 GMT. Daily high and low stood at $110.25 and $109.44 per barrel, respectively. Brent’s premium to WTI stood at $5.33, largely on par with Tuesday’s closing margin of $5.17. Yesterday the contract lost 0.43%, after on Monday the EU benchmark added 1.21%.

US oil inventories

The US Energy Information Administration (EIA) posted its weekly oil inventories report for the seven day through June 6 today. The log revealed a 2.596-million-barrel decline, after the private American Petroleum Institute (API) had suggested a 1.5M-barrel increase on Tuesday. A Reuters poll had proposed the same figure as API, while a Bloomberg survey projected a 2M gain. The previous reading, for the week through May 30, showed crude supplies had lost 3.431 million barrels.

Oil at Cushing, Oklahoma, the delivery point for the NYMEX contract and the largest hub in the US, was reported at 21.2 million barrels for a 200 000-barrel drop, after a -0.3M reading was logged for the previous week. Meanwhile, hubs at the Gulf Coast lost 100 000 barrels to stand at 207.0 million, after a massive 6-million-barrel drop last week.

Domestic production of crude oil was logged at 8.460 million barrels per day (bpd), which is minor increase, after an 89 000-bpd drop was reported the previous week. Meanwhile, imports of crude were almost unchanged at 7.146 million bpd. Over the previous two readings inbound shipments declined by 1.4 million barrels daily, almost 20% of current imports.

Gasoline inventories added 1.697 million barrels for the week through June 6, while API had reported a 0.4-million-barrel decline, after last week saw a 210 000 gain. Distillate fuels stockpiles increased by 0.860 million barrels, while API posted a 0.3M drop on Tuesday. Previously, distillates inventories had added 2.012 million barrels in the week through May 30.

Refinery utilization rate was logged at 87.9%, almost 3% down since the previous reading. Over the previous two weeks, the utilization rate had added 2.1%. Gasoline production this week dropped by 0.6 million bpd for a standing of 8.855M bpd, after a slight decline was logged in the previous reading. Meanwhile, gasoline imports dropped 30% to 560 000 bpd, after adding 119 000 bpd last week. Distillates output averaged 4.865 bpd with a drop of nearly 0.4 million bpd, after a 237 000-bpd gain was reported last week.

Demand outlook

Several reports on the US economy, which consumes 21% of all oil, will be posted later this week. Jobless claims will be posted on Thursday, with expectations of unchanged weekly figures at 310 000 new applications and 2.6 million continuing claims. Also on Thursday, retail sales are expected to post a preliminary 0.4% monthly growth for May, after muted 0.1% increase the previous month. Later, PPI for May will be revealed on Friday, and analysts project a 0.3% gain on a monthly basis and 1.9% year-on-year.

China

The Chinese government revealed a plan to help boost the economy yesterday. Authorities announced reserve requirements cutbacks for banks, which lend to farming companies and small-to-medium sized firms, in attempt to reverse the economic growth slowdown.

“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.

A number of key gauges on the Chinese economy will be reported 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.

Previously, Chinese foreign trade and CPI were reported. Surprisingly shrinking imports indicated lowering domestic consumption, while a sharp drop for inbound crude oil shipments only added to negative sentiment. CPI and PPI were reported better-than-expected, but still in the negative on an annual basis.

Natural gas

Front month natural gas futures, due in July, added 0.24% at the New York Mercantile Exchange to trade for $4.541 per million British thermal units at 14:46 GMT. Prices ranged from $4.517 to $4.573 per mBtu. Yesterday the contract dropped 2.48%, after a further 1.38% loss on Monday, though it did reach a monthly high at $4.743 per mBtu.

“There’s not a lot of extreme weather,” Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami, said for Bloomberg. “That’s maybe causing the market to dip down.”

The US, which consume 21% of all natural gas, will report natgas stockpiles levels tomorrow. Inventories probably expanded by 114 billion cubic feet for the week through June 6, Tim Evans, energy analyst at Citi Futures in New York, wrote in note to clients today, cited by Bloomberg. Another survey by Bloomberg suggested a 109 bcf gain.

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.

The EIA raised its inventories levels forecast through November, when heating demand usually picks up, to 3.424 trillion cubic feet, which would be more then enough to cover a harsh winter.