Commodities trading outlook: crude oil and natural gas futures

WTI and Brent futures were pressured during midday in Europe, with only muted trade, due to a holiday in the US and UK. Ukraine held presidential elections on Sunday, and the winner is almost certain to be confectionery billionaire Petro Poroshenko. Elsewhere, a number of important economic figures for top-consumer US will be reported this week. Meanwhile, natural gas futures were relatively steady, after logging the third consecutive week of losses on Friday.

West Texas Intermediate futures for settlement in July traded for $104.07 per barrel at 12:29 GMT on electronic trading on the New York Mercantile Exchange, down 0.27%. Prices ranged from $103.92 to $104.34 per barrel. Last week the contract gained 2.71%, after the Energy Information Administration in the US revealed supplies of crude had decreased by almost 8 million barrels.

Meanwhile on the ICE in London, Brent futures due in July recorded a 0.54% drop to trade for $109.94 per barrel at 12:19 GMT. Daily high and low stood at $110.55 and $109.75 per barrel, respectively. Brent’s premium to WTI stood at $5.94, narrowing last week’s closing margin of $6.19. On Friday, the European benchmark closed for a 0.71% weekly increase, reaching an 11-week peak.

Both the ICE and NYMEX are in holiday today, and contracts will be earmarked for settlement tomorrow, when regular sessions begin.

Ukraine

Ukraine held the presidential vote on Sunday, May 25. With 70% of ballots counted, billionaire Petro Poroshenko receives 53.75%, according to the BBC. The margin would be enough to claim victory in the first round.

In his first speech after voting had ended, he addressed the need for peace and stability. He pledged his efforts would be aimed at not only ending the conflict withing Ukraine, but also normalizing relations with Russia. He is viewed as a strongly pro-Western politician, but argues that peace in the region would be impossible without cooperation with Russia. He added that he will never recognize Russia’s annexation of the Crimea.

“My first decisive step will be aimed at ending the war, ending chaos, and bringing peace to a united and free Ukraine,” Mr Poroshenko said at a press conference in Kiev.

The US and UK expressed their support for the vote and its result, dubbing it an “important step forward” and a “decisive signal.”

Moscow is “open for dialogue” with the newly elected Ukrainian president, Russian Foreign Minister Sergei Lavrov said earlier today. He added, that the military actions by authorities in the eastern regions must end.

Heavy gunfire was reported from the airport in Donetsk, one of the bastions of pro-Russian sentiment, and a newly self-declared independent “republic.” Other battles were being fought across a number of villages and towns in the region, the BBC reported.

Outlook

Tomorrow will bring a number of important economic data for the US, which consumes 21% of all oil in the world. Foremost, durable goods orders for April are to be reported. Experts suggest total orders have decreased by 0.5% on a monthly basis after gaining 2.5% in March, while core orders, which exclude the more volatile transportation items, have gained 0.3% after a 2.1% growth in March.

Later on Tuesday, Markit will post its preliminary services PMI for May. Analysts forecast a slightly quicker expansion for the services sector, which accounts for almost 80% of US GDP, with a figure of 55.6, up from 55.0 for April.

Lastly, the Conference Board (CB) will reveal its consumer confidence index for May. It is a leading indicator for consumer spending, which generates about 70% of US GDP. Analysts predict the CB will report an improving consumer sentiment, logging the index at 83.0, up from 82.3 for April.

Wednesday will post data from the EU, before on Thursday the US reveals quarterly GDP growth. Analysts expect a slight contraction after the brutal winter halted economic activities for a prolonged period. Also on Thursday, pending home sales for April in the US will be reported, with forecasts of small gains.

On Friday, a report on personal income and spending for April in the world’s top economy will be released. Economists project a minor monthly increase in both.

Elsewhere, China will be trying to reduce its energy consumption, relative to GDP, a statement on the government’s website revealed.

“China is trying to reduce energy consumption targets and that news might be considered as a negative factor for the oil market,” said for Bloomberg Ken Hasegawa, energy trading manager at Newedge Group in Tokyo.

Last week, the Energy Information Administration report, released on Wednesday, revealed that crude oil stockpiled in the US had dropped by almost 8 million barrels in the week ended May 16. The decline was due, primarily, to a sharp decrease in imports, which fell by almost 0.7 million barrels per day (bpd). Oil at Cushing was also drawn to stand at 23.2 million barrels. Previously, commercial reserves of crude oil in the US were pushing record-high readings for the past two months, and they still remain in the vicinity of historic highs.

Gasoline supplies added 0.970 million barrels, amid a 14 000 bpd decline in domestic production and a 120 000 bpd growth in imports. Distillates inventories grew by 3.4 million in light of increasing production and more imports.

“Although demand is going to pick up during the driving season, inventories are very high and supply capacities are very high so there shouldn’t be too much pressure on markets,” said for Reuters Ric Spooner, chief analyst at CMC Markets in Sydney.

Natural gas

Front month natural gas futures, due in June, fell by 0.30% at the New York Mercantile Exchange to trade for $4.392 per million British thermal units at 12:31 GMT. Prices ranged from $4.385 to $4.406 per mBtu. Last week the blue fuel lost 0.01%, nearing a two-month low at $4.349 per mBtu.

According to AccuWeather.com New York will be very hot today, with temperatures ranging 67 to 86 degrees Fahrenheit, 10 to 12 above average. Tomorrow will also be mostly sunny, though an afternoon thunderstorm is possible, which will not impact readings very much. Wednesday will be quite cooler, with highs in the upper 60s, several degrees short of usual for this time of year. The slightly below-average temps will stay through the end of the week and into June.

Boston is also set heat today, with temperatures 10-15 degrees above average, at 60 to 84 Fahrenheit. Tomorrow will bring a sizable decline in readings, which will be largely normal. Wednesday and Thursday will be quite cooler, with temps ranging 52-65 degrees. The weather will normalize into the weekend and next week, when more heat is to be expected.

The weather over Chicago will be similar to that of the East Coast, with temperatures several degrees above normal today and tomorrow, and a sizable drop midweek. Over the weekend readings will range 55 to 73, which is on-par with the average.

On the West Coast, Los Angeles will be slightly warmer than usual through this week, with highs in the upper 70s and low 80s. The first half of next week will be hotter, with highs in the upper 80s.

Last Thursday, the EIA released its weekly report on natural gas storage levels in the US for the week through May 16. The report showed that supplies of the blue fuel had added 106 billion cubic feet (bcf), exceeding expectations of 100-103 bcf growth. The figure records the biggest weekly gain since June 2013, and is 16 bcf above the 5-year average increase for the week.

However, stocks still need to recover more than 2.5 trillion cubic feet in order to restore pre-winter levels before November. This equals an average of more than 100 bcf gains each week till then, and as summer season sets in, such growth might be hard to achieve.

Shale gas production is peaking, but power demand will be inevitably growing, as air conditioners are put to work for the hot summer months ahead.