Commodities trading outlook: crude oil futures off multi-month lows, natural gas up

WTI and Brent futures were slightly higher during midday trade in Europe today, as developments in Ukraine were weighed with US rate hike outlooks. Meanwhile, natural gas futures climbed on warmer than usual US weather.

West Texas Intermediate futures for October delivery on the New York Mercantile Exchange traded at $93.71 per barrel, up 0.06%, at 12:59 GMT. Prices ranged from $93.28 to $93.95 per barrel. The US benchmark dropped ~1.7% last week.

Meanwhile, October Brent on the ICE in London, stood for a 0.20% increase at $102.49 per barrel. Daily low and high were $101.65 and $102.65 per barrel, respectively. The contract’s premium to its US counterpart was $8.78 after last week’s closing margin of $8.64. The European brand closed last week down ~1%.

Last week’s reported 4.5m barrel drop for US inventories was overshadowed by an increase in gasoline supplies, signalling low consumer demand, pressuring prices down the line.

Investors now turn to economic data now, to gauge the direction of the dollar, and crude. The German Ifo Business Climate Index posted a below-par German business confidence, the lowest level in 13 months, while later we’ll see US new home sales figures, which are said to have made significant gains last month.

The value of the dollar plays a significant role in crude pricing, as a stronger US currency lifts the relative price of any dollar-denominated trade good, such as crude oil, to other currencies.

The US dollar index, which measures the strength of the greenback, is at a 13-month peak and growing, as speculation that the US Federal Reserve will be raising the benchmark interest rate earlier than previously thought gains momentum. Further positive economic data in the US, and downbeat EU figures, will offer more energy to dollar bulls.

The geopolitical scene also clocked in sizable impacts on prices over the past few weeks, though it is losing leverage relative to economic data.

Ukraine, Middle East

Ukrainian sources said another column of Russian armored vehicles entered Ukraine early on Monday. Several sources described the situation as an actual war, with one official saying Russian forces in the guise of the Donbas rebels had invaded Ukraine.

Russian Foreign Minister Sergei Lavrov said there is a lot of “misinformation” going about from Kiev recently.

He also said Moscow plans to send another humanitarian convoy to Ukraine. The first one caused an international outrage, after it was sent in by Moscow, despite protests from Kiev.

Elsewhere, the ongoing conflicts in Iraq and Libya failed to disrupt oil exports, while Israel’s Gaza campaign is still continuing.

Natural gas

Front-month natural gas futures for delivery in September traded at $3.917 per million British thermal units (mBtu), up 1.64%. Prices ranged from $3.843 to $3.932 per mBtu. The blue fuel added ~1.7% last week.

“Prices could again be a bit volatile early this week with only a few days left on the September contract as many regions finally experience hot summer temperatures,” analysts at NatGasWeather.com said in a note to clients today. “However, our bias still remains to the downside as weather patterns suggest prices should remain pressured.”

Dropping temperatures in the summer ease cooling demand, which in term lowers overall natural gas consumption, as 30% of all US natgas is burned in power stations, generating electricity for air conditioners, among all other things.

Last week’s official US natgas storage report revealed 88 billion cubic feet (Bcf) were added to inventories in the week through August 15th. The build was larger than the expected 83 Bcf and was almost double the 5-year average gain for the week, while also marking the sixteenth straight week of higher-than-average injections.

This week’s report, which will cover the seven days through August 22nd, is expected to be leaner than the previous builds, though still quite larger than the average. 90+ Bcf builds are forecast to be returning as soon as next week, and triple digits will soon hit markets as well, as analysts agree that inventories will be fully replenished ahead of heating season, which typically starts in November.

US weather outlook

NatGasWeather.com’s weekly US weather forecast projects high pressure and rising temps across the southern and central US in the next few days. A strong cool blast, however, will track into the central states midweek, considerably easing cooling demand as temps in the Midwest drop 13-20 degrees. The West will see a series of weather systems in the northwest, while California is set for a very hot second half of the week. The eastern states will feel the influence of tropical storm Cristobal, though the system will be drifting safely to the east of the mainland, before cool systems push it further away from the coast. Overall cooling demand will be moderate-to-high in the first half, easing to moderate later on.

Next week is set for cooler than normal temperatures across the central and northern US, while the South remains seasonally warm. Cooling demand will be moderate-to-low.