Commodities trading outlook: crude oil, natural gas futures

Both the European and US benchmarks fell midday, as peace talks on Ukraine began in Geneva. Still strained tensions in Eastern Europe proved a strong support for the market, paring bearish supply data from the US and rising Libyan exports. Meanwhile, natural gas lost its narrow daily gains, as a report on natural gas inventories in the US is due.

On the New York Mercantile Exchange WTI for delivery in May traded at $103.93 at 12:42 GMT, up 0.16% on the day. Prices ranged from $$104.28 to $103.54.

Meanwhile, Brent crude futures for settlement in June was standing at $109.55 on the London-based Intercontinental Exchange, losing 0.05% to yesterdays close. The American benchmark gained on its US counterpart to narrow its discount to $6.43 from Tuesdays close at $6.57.

Ukraine remains the dominant force behind major crude oil price movements. Escalating tensions proved to be a very strong bullish force for the market. Limited success of the government’s anti-terrorist operation prompted questions of the time-frame and the end-result of the action, stirring fears of prolonged military confrontation and a possible Russian intervention.

Meanwhile, as the four-way meeting in Geneva began, speculation on the markets rose, with both the European and US benchmarks losing daily gains on hopes of successful talks, boosted by remarks from the Russian president that “he hoped he would not need to send Russian troops to Ukraine and that diplomacy could succeed in resolving the stand-off,” Reuters reported.

Michael McCarthy, chief strategist at CMC Markets, Sydney, said for Bloomberg: ”The saber-rattling in Eastern Europe is playing part in the firmness of oil prices… Prices’ resilience in the face of the inventory build-up is remarkable”.

Yesterday US crude pared some of its gains after the Energy Information Administration reported that US crude oil supplies jumped by 10.0 million barrels to 394.1 million in the week ended April 11th, sharply exceeding the median estimate of analysts surveyed by Bloomberg for a moderate 1.75-million-barrel jump. This was the largest build up in more than ten years.

Inventories at Cushing, Oklahoma, the biggest US storage hub and delivery points for NYMEX-traded contracts, slid by 771 000 barrels to 26.8 million, the lowest level since October 2009.

Also yesterday, dollar levels fell and gave a boost to oil prices, as Fed Chairman Janet Yellen pledged continuing support for the US economy. Yellen suggested investors should pay close attention to inflation and employment rates as signals of Fed’s policy on stimulus.”This approach underscores the continuing commitment of the FOMC to maintain the appropriate degree of accommodation to support the recovery,” Yellen said.

In other news, Libya – Africa’s largest crude reserves holder, announced the long-awaited re-opening of oil-exporting port Hariga – one of four oil-exporting ports in the east of the country, that were seized by militants last year.

Mohamed Elharari, a spokesman at the state-run National Oil Corporation, said for Bloomberg Libya is producing 330 000 barrels of crude per day.

Natural gas

Natural gas contracts for settlement in May traded at $4.524 per million British thermal units at 12:45 GMT on the New York Mercantile Exchange, falling 0.13% for the day. Prices shifted between $4.565 and $4.517 per mBtu. Prices are down 2.1% so far this week.

According to NatGasWeather.com, Thursday started as expected – with chilly weather, but temperatures are set to rise across the 48 lower states. A build-up of high-pressure will result in higher-than-average readings over the next days, with the exception of the North-central region, which will see entry of cold northern air on Saturday. The Northeast will also see limited warm-up, and heating demand there is expected to retain current levels.

After the weekend, more active weather is to follow, with cold blasts tracking in from Canada. According to NatGasWeather, though, after the warm-up in the next few days, there will be no significant rise in temperatures over the following weeks, suggesting slight-to-no gains for natural gas reserves build-up after the recent warm-up, lifting prices for front-month delivery.

Later today, the Energy Information Administration is due to release its weekly report on natural gas reserves as investors are keeping close watch for changes that would suggest a rise in demand. Expectations stand at a weekly gain of 34BN cubic feet in inventories, as the recent warm-up supposedly helped replenish stocks.