Commodities trading outlook: crude oil and natural gas futures

Crude oil futures traded lower after the ECB rate decision was announced today, as the euro weakened and the dollar gained. However, action in the Eurozone indicates possible future growth for consumption in the Bloc, improving outlooks for oil. Meanwhile, natural gas futures plummeted deep into negative territory on news of massive supply gains for top-consumer US.

West Texas Intermediate futures for settlement in July traded for $101.77 per barrel at 14:25 GMT on the New York Mercantile Exchange, down 0.85%. Prices ranged from $101.60 to $102.47 per barrel. Yesterday WTI closed for a 0.02% loss, and so far for the week the contract has dropped 0.06%.

Meanwhile on the ICE in London, Brent futures due in July stood for a 0.52% drop at $107.84 per barrel at 14:26 GMT. Daily high and low stood at $108.35 and $107.77 per barrel, respectively. Brent’s premium to WTI stood at $6.07, widening Wednesday’s closing margin of $5.76. Yesterday the European brand closed for a 0.39% drop, and so far for the week the contract has lost 0.93%.

US oil supplies

Wednesdays Energy Information Administration (EIA) report on US oil inventories for the week through May 30 revealed a sizable drop for commercial crude supplies. Stockpiles were reported to have lost 3.4 million barrels, with a massive weekly drop for imports for a second week, which now have decreased by almost 1.5 million barrels per day (bpd) since mid May.

Crude in storage at Cushing, Oklahoma, declined by a further 0.3 million, while hubs at the Gulf Coast also logged a sizable drop of 6 million barrels.

Meanwhile, gasoline inventories added 0.2 million barrels, while distillate fuels supplies grew by more than 2 million.

“An overall bearish picture resulted from total hydrocarbon stocks increasing,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London, said in a report, cited by Bloomberg. “The door is still open for a short-term correction in prompt WTI, possibly below $100.”

Economic outlooks

Eurozone

The European Central Bank revealed the long-awaited interest rate decision today. Borrowing costs were moved downwards to 0.15%, which is higher than the forecast 0.10%. Meanwhile, deposit rates were moved to negative territory, and now stand at -0.10%, which means ECB will tax commercial banks for keeping their money in deposit. The measures are aimed at revitalizing the European credit market, in order to breathe life into the economy and spur growth.

“They have to do something to address weak inflation,” Nick Matthews, senior economist at Nomura International Plc in London, said for Bloomberg before the decision. “Investors are expecting them to keep alive the option of more unconventional measures like quantitative easing.”

Earlier today, the Eurozone, which consumes about 14% of the worlds oil supply, logged retail sales for April at 0.4% on a monthly basis, beating expectations and improving on the downgraded 0.1% growth from March.

Previously, the Eurozone posted more disappointing data, with CPI dropping to 0.5%, and GDP at a muted 0.2% quarterly growth, while services PMI logged a slowdown in expansion of the sector.

Tomorrow Germany, the Eurozones top economy, will post seasonally adjusted industrial production for April, and experts forecast a standing of 0.4% growth, after a 0.5% contraction for March.

US

The US, which accounts for 21% of total oil consumption, posted the weekly jobless claims report for the seven day through May 31 today. Initial applications for unemployment benefits increased more than expected to 312 000, after 300 000 were logged for the previous week. Meanwhile, continuing claims for the week ended May 24 were reported at 2.603 million, improving on expectations and on the previous standing.

Tomorrow the US will post key employment figures. Unemployment rate for May is expected to stand at 6.4%, after 6.3% for April. Meanwhile, nonfarm payrolls for May have probably added only 219 000, after a 288 000 figure for the previous month, signaling the US is not quite out of troubles yet.

Yesterday ADP posted preliminary figures on payrolls in the US, which stood for 179 000 new payrolls in May, well below the downgraded April reading. Also, ISM revealed non manufacturing PMI for May to exceed expectations and pick up expansion rate by about 20%. The services sector accounts for about 80% of US GDP.

China

Early today, HSBC posted its reading on services PMI for May in China, which consumes about 11% of all oil. The figure, which measures private sector services growth, was logged at 50.7, after 51.4 for April. A reading above 50 means expansion, while anything below is read for contraction, and the greater the figure is from 50, the bigger the expansion or contraction is.

Previously, HSBC reported contracting factory activities in China, while the official government’s reports revealed an expanding manufacturing sector and a significantly growing services sector, conflicting with HSBC’s readings (Do note the government’s services gauge includes non private companies).

On Saturday China will report exports, imports and trade balance, with expectations of sizable growths both ways, after muted expansion were reported last month.

Natural gas

Front month natural gas futures, due in July, declined by 1.10% at the New York Mercantile Exchange to trade for $4.589 per million British thermal units at 14:40 GMT. Prices ranged from $4.586 to $4.688 per mBtu, reaching a monthly high. Yesterday the contract added 0.24%, and so far for the week the blue fuel has gained over 2%.

The EIA weekly natural gas inventories report for the week through May 30 was released today. The 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.

Last week a further huge gain of 114 bcf was logged, setting the tone for more record yields throughout the summer, as suggested by the EIA.

However, as summer season sets in and temperatures rise, air conditioning will become more intense, pushing up power demand, which could hurt natgas supplies and support price levels.