Commodities trading outlook: crude oil and natural gas futures

WTI and Brent futures were higher during midday trade in Europe today, as the US reported employment data for May. Previously, contracts were little impacted by a reported drop for US oil inventories, and by ECBs interest rate decision. Meanwhile, natural gas futures were lower, after a sizable gain for stockpiles in top-consumer US was reported on Thursday.

West Texas Intermediate futures for settlement in July traded for $102.97 per barrel at 13:20 GMT on the New York Mercantile Exchange, up 0.48%. Prices ranged from $102.32 to $103.07 per barrel. Yesterday WTI closed for a 0.16% loss, and so far for the week the contract has dropped about 0.2%.

Meanwhile on the ICE in London, Brent futures due in July stood for a 0.18% gain at $108.99 per barrel at 13:21 GMT. Daily high and low stood at $109.31 and $108.74 per barrel, respectively. Brent’s premium to WTI stood at $6.02, narrowing Thursdays closing margin of $6.31. Yesterday the European brand closed for a 0.36% gain, and so far for the week the contract has lost about 0.5%.

US outlook

The US, which consumes 21% of all oil, posted key employment data for May today. New nonfarm payrolls stood at 217 000, as predicted, after 288 000 were added in April. Unemployment rate stood same as last month at 6.3%, which is the lowest level since September 2008, beating expectations of a slight increase.

Yesterday the weekly jobless claims report for the seven day through May 31 was posted. 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.

Earlier, Wednesday’s 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.

Eurozone

Earlier today, Germany, the Bloc’s top economy, posted seasonally adjusted industrial production for April. The figure was logged at a 0.2% monthly growth, after a downgraded -0.6% for March.

Yesterday the European Central Bank revealed the long-awaited interest rate decision. 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.

Also yesterday, the Eurozone, which consumes about 14% of the world’s 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 and GDP at a muted 0.2% quarterly growth, while services PMI logged a slowdown in expansion of the sector.

Natural gas

Front month natural gas futures, due in July, declined by 0.09% at the New York Mercantile Exchange to trade for $4.697 per million British thermal units at 13:22 GMT. Prices ranged from $4.690 to $4.726 per mBtu, reaching a monthly high. Yesterday the contract added 1.31%, and so far for the week the blue fuel has gained about 3.5%.

The EIA weekly natural gas inventories report for the week through May 30 was released yesterday. 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. Stockpiles levels remain 33% below the reading from the previous year, but gradually recover.

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.

“As we get into June, cooling demand begins to pick up,” said for Bloomberg Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “Even with the robust stock injections, the market is concerned that we are very shortly going to pass the peak of our injection season and that isn’t going to be enough.”