Commodities trading outlook: crude oil and natural gas futures

WTI and Brent futures continued to advance during midday trade in Europe today, boosted by violence in Iraq and the reported drop for US crude oil inventories. Investors shrugged off some worse-than-expected US data earlier. Meanwhile, natural gas futures soared, as the US posted weekly figures on blue fuel stockpiles levels.

West Texas Intermediate futures for settlement in July traded for $105.96 per barrel at 14:50 GMT on the New York Mercantile Exchange, up 1.49%. Prices ranged from $104.35 to $106.53 per barrel, reaching an eight-month high. Yesterday the contract added 0.05%, and so far this week the US benchmark has added 1.6%.

Meanwhile on the ICE in London, Brent futures due in July stood for a 1.77% gain at $111.31 per barrel at 14:51 GMT. Daily high and low stood at $111.81 and $109.34 per barrel, respectively, reaching a three-month high. Brent’s premium to WTI stood at $5.35, narrowing Wednesday’s closing margin of $5.55. Yesterday the contract added 0.39%, and so far this week the European brand has gained more than 1%.

Iraq

Iraq was the scene of a bloody religious onslaught recently, when an Islamist organization, boasting some 5 000 troops, according to the BBC, launched assaults on towns in the northern provinces of the country. The advance threatened the largest Iraqi oil refinery, at the town of Baiji, and militants had even seized it briefly, before the Iraqi military wrestled back control.

“The Iraq development is the main driver for oil prices today and increases nervousness over the security of supply from the country,” Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said for Bloomberg. The possibility of U.S. intervention in Iraq “is another sign of how desperate the situation is and how weak the government has become.”

Iraq shipped 5.43 million barrels from Basra yesterday, according to the oil minister.

Meanwhile, OPEC kept its output quota at 30 million barrels per day, in a largely anticipated move.

US outlook

Several reports on the US economy, which accounts for 21% of all oil, were posted today. The preliminary figure on retail sales was logged just below expectations, for a 0.3% monthly growth in May, after an upwards-revised 0.5% for April. Meanwhile, core retail sales, which exclude automobiles, stood at 0.1% monthly increase, also short of expectations, after 0.4% in April. Retail sales are indicative of consumer spending, which generates about 80% of US GDP.

Also today, jobless claims were reported. Initial applications for unemployment benefits in the US for the week through June 7 were logged at 317 000, slightly more than expected. Meanwhile, continuing claims for the week ended May 31 stood at 2.614 million, also slightly adding to the previous reading.

PPI for May will be revealed on Friday, and analysts project a 0.3% gain on a monthly basis and 1.9% year-on-year.

Previously, the US Energy Information Administration (EIA) posted its weekly oil inventories report for the seven day through June 6 yesterday. The log revealed a 2.6-million-barrel drop for crude oil inventories, with a sizable decline for imports, which have now dropped almost almost 20% over the last two weeks. Meanwhile, gasoline stockpiles added 1.7M barrels, while distillates gained 0.9 million. The report also revealed sizable drops for distillates and gasoline production, with a downturn in the refinery utilization rate.

Elsewhere, a number of key gauges on the Chinese economy, which accounts for 11% of global oil demand, will be reported tomorrow. Foremost, industrial production for May will be posted, and experts suggest a steady 8.8% growth year-on-year, after 8.7% in April. The industrial sector accounts for nearly half of Chinese GDP. Also due on Friday, reports on fixed assets investments and retail sales for May are expected to reveal steady annual growth for both.

Natural gas

Front month natural gas futures, due in July, added 3.57% at the New York Mercantile Exchange to trade for $4.669 per million British thermal units at 14:53 GMT. Prices ranged from $4.520 to $4.688 per mBtu. Yesterday the contract dropped 0.49%, and so far this week natural gas futures have lost more than 4%.

The EIA posted its report on US natural gas inventories for the week through June 6 today. The log revealed stockpiles had added 107 billion cubic feet (bcf). A Bloomberg survey had suggested a 109-bcf gain.

Previously, last week’s log revealed a gain of 119 billion cubic feet (bcf), beating expectations of a 116-bcf increase. The injection was the biggest stockpiles had received since June 2009. However, inventory levels remain 31% below readings from last year, but gradually recover.

The EIA raised its inventories levels forecast through November, when heating demand usually picks up, to 3.424 trillion cubic feet, which would be more then enough to cover a harsh winter.