Commodities trading outlook: crude oil and natural gas futures

Crude oil futures extended last week’s rally during early trading in Europe today, as bloody fighting in Libya over the weekend boosted the risk premium. Elsewhere, Ukraine is preparing to hold presidential elections this week. Meanwhile, natural gas futures climbed during early trading in Europe today, after sizable losses last week.

West Texas Intermediate futures for settlement in July traded for $102.28 per barrel at 11:51 GMT on the New York Mercantile Exchange, adding 0.69%, daily prices between $101.52 and $102.33 per barrel, nearing the highest level in a month. Last week the contract added more than 2% as driving season in the US draws nearer.

Meanwhile on the ICE in London, Brent futures due in July recorded a 0.31% rise to trade for $110.09 per barrel at 11:42 GMT. Prices ranged from $109.73 to $110.33 per barrel, nearing a two-month high. Brent’s premium to WTI July contracts stood at $7.81, narrowing Friday’s closing margin of $8.17. Last week the contract gained 2.30% with support from Ukraine and higher gasoline demand in the US.

Ukraine crisis

Russian President Vladimir Putin ordered for troops to move withdraw from the border for the third time in recent weeks. Previously, NATO and Ukraine could not confirm a move-out had actually taken place, and nothing indicates this will change this time either.

The Kremlin statement added that Mr Putin “welcomes the first contacts between Kiev and the supporters of federalization” of Ukraine, in address of the peace talks, which began in Kiev last week. Rebels were not represented on the “round table,” but some advocates of the move did take part.

The talks are part of the Organisation for Security and Co-operation in Europe’s “roadmap” out of the crisis and an attempt to defuse tensions before the presidential elections on May 25th. The US threatened more sanctions if “Russia or its proxies” try to ruin the vote.

“In the run up to the elections next week the tensions will continue,” said for Bloomberg Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt. “Even after the presidential elections it’s unlikely to calm down. So this factor of instability is likely to stay.”

Meanwhile, the conflict took more victims today, as rebels attacked a government-controlled checkpoint near the separatist bastion of Sloviansk. The attack left one soldier dead and one injured, the defense ministry was quoted as saying.

Previously, Donetsk and Luhansk regions declared independence, following the referendum last Sunday. Separatist leaders said all Ukrainian troops in the provinces will be regarded as “occupying” forces. The Kremlin said it expects the “will of the people be implemented,” though has yet to comment on the rebels’ requests for Moscow to incorporate the regions in the Russian Federation.

Libya

The country has seen much turmoil since the ousting of Colonel Muammar Gaddafi. Now Libya has an Islamist-backed government, and the presence of religious hardliners in Tripoli fueled dissent among the rebels, who took down Gaddafi’s regime.

The powerful rebel brigades, alongside forces loyal to retired colonel Khalifa Haftar stormed the Libyan parliament on Sunday, killing two. The militias demanded the institution be disbanded and a new structure be set in its place, in order to draw a non-Islamist constitution. The government assured it was in control, but warlords have been controlling large fiefdoms since the Arab spring began.

“There’s no real parliament in here, in Libya. There’s no real government, there’s militias everywhere,” said National Forces Alliance party member Tawfik Breik, according to the BBC.

Elsewhere in the country, El Feel oilfield has once again been closed, after a brief reopening last week. It is not clear whether the closure is in connection with the escalating turmoil, but it has nevertheless stifled hopes of improved Libyan oil output.

“[Libya’s crude production] is already impaired and certainly not positive, which should be supportive of higher prices,” said for Bloomberg Michael McCarthy, chief strategist at CMC Markets in Sydney. “Adding the potential for escalation in Ukraine, it’s quite clear the risks that oil is on the upside this week.”

Libya holds Africa’s biggest oil reserves and has a potential output of more than 4 million barrels per day. However, as of last Thursday output is at 200 000 barrels daily, according to the National Oil Corporation.

Natural gas futures

Front month natural gas futures, due in June, gained 1.11% at the New York Mercantile Exchange to trade for $4.462 per million British thermal units at 11:54 GMT. Prices ranged from $4.390 to $4.476 per mBtu. Last week the contract lost 2.50% as heating season in top-consumer US nears an end.

According to AccuWeather.com New York will partly sunny today, with temperatures ranging 55 to 72 degrees Fahrenheit, which is normal for the season. Tomorrow and Wednesday will be slightly warmer, with more sun, though also with a possibility of brief thunderstorms. The weather will be pretty normal throughout this week. However, next week will bring seat, with temperatures pushing in the high 80s. Chicago is set for a sunny day, with average readings, ranging 57-67 Fahrenheit. Tomorrow and Wednesday will be significantly warmer, with highs in the upper 70s, several degrees above normal. Through the end of the week temperatures will normalize and, much like New York, the weather will be much warmer next week. On the West Coast, Los Angeles will be slightly “cooler” than average, with readings ranging 58-72 this whole week, following the scorching heat last week, which registered highs in the triple digits.

US natgas inventories

US natural gas stockpiles added 105 billion cubic feet in the week ended May 9th, government data showed on Thursday, which was the highest injection in almost a year. Analysts had expected a build up of around 100 billion cubic feet.

Output from shale formations will lead to record increases in stockpiles through the end of October, when heating demand kicks in, Goldman Sachs Group Inc. said in a note.

“We’ve had consecutive bearish surprises in the storage numbers,” said for Bloomberg Tim Evans, energy analyst at Citi Futures in New York. “There’s a risk that we’ll continue to probe the downside in the weeks ahead.”