Commodities trading outlook: crude oil and natural gas futures

WTI and Brent futures were higher during afternoon trade in Europe today. Iraq worries seemed slightly fading earlier, with authorities announcing they are bolstering the military. Meanwhile, natural gas futures were lower and headed for a sizable weekly loss.

West Texas Intermediate futures for settlement in August traded for $106.01 per barrel at 13:18 GMT on the New York Mercantile Exchange, up 0.16%. Prices ranged from $105.48 to $106.19 per barrel. The US contract dropped 0.62% yesterday, and so far this week WTI has lost about 1%.

Meanwhile on the ICE in London, Brent futures due in August stood for a 0.34% gain at $113.60 per barrel. Daily high and low stood at $113.69 and $112.90 per barrel, respectively. Brent’s premium to August WTI stood at $7.59, after yesterday’s closing margin of $7.37. The European contract dropped 0.69% yesterday, and so far this week Brent has lost about 1.4%.

Iraq

Iraqi authorities are acquiring fighter jets from Russia and Belarus, the government reported, in a bid to bolster the military against the Sunni rebels, led by the extremist organization ISIS (Islamic State in Iraq and the Levant). “God willing within one week this force will be effective and will destroy the terrorists’ dens,” he said, cited by the BBC.

Earlier, Prime Minister Nouri Maliki dismissed a widely discussed and promoted idea of a government of national unity, including more Sunni and Kurdish representation. Such calls represented a “coup against the constitution and an attempt to end the democratic experience”, he warned, the BBC reported.

Previously, insurgents took control of the country’s largest oil refinery, which supplies about a third of Iraq’s fuel demand. Elsewhere, militants seized all official border crossings in Syria and Jordan. The Jordanian army has been on full alert, protecting its borders against incursions, the Jordanian military said.

The Iraqi government insisted insurgents do not threaten Baghdad, nor the southern oilfields, which account for more than 75% of Iraqi oil output. Furthermore, the Iraqi oil minister said production and exports will actually increase over the next month.

Iraq is OPEC’s second-top oil producer, and exports some 3 million barrels per day from its main southern terminal at Basra.

“Markets are beginning to position for the likelihood that insurgents will be contained from any further incursions to the south, allowing oil exports to be maintained,” Ric Spooner, chief strategist at CMC Markets in Sydney, said in a note today, cited by Bloomberg.

US outlook

Several readings on the US economy, which consumes 21% of all oil, were reported yesterday. Jobless claims were slightly worse than a week earlier, while personal spending and income for May were slightly better than before, at 0.2% and 0.4% growth, respectively. Personal income and spending are leading indicators for consumer spending, which accounts for nearly 80% of US GDP.

Elsewhere, China posted industrial profits for May earlier today, for a standing of 8.9% growth on an annual basis. The industrial sector accounts for nearly half of Chinese GDP.

“There’s a broad theory that the recovery in the U.S. is gaining pace,” Michael McCarthy, a chief strategist at CMC Markets in Sydney, said for Bloomberg. “In the face of increasing supplies, prices have held firm and that suggests that the clear driver at the moment is geopolitical tensions.”

Inventories report

The US Energy Information Administration (EIA) posted its weekly oil inventories report for the seven day through June 20 on Thursday. The log revealed a 1.742 million-barrel gain for commercial crude oil inventories, while gasoline and distillates added 0.7 and 0.4 million barrels, respectively. Refineries were shown to have operated at an increasing pace of 88.5%, though gasoline production was down almost 10%. Oil at Cushing was slightly more than previously.

Natural gas

Front month natural gas futures, due in August, dropped 0.29% at the New York Mercantile Exchange to trade for $4.428 per million British thermal units at 13:19 GMT today. Prices ranged from $4.466 to $4.411 per mBtu. The contract dropped 2.80% yesterday, and so far this week the blue fuel has lost about 2.4%.

The EIA released its weekly natural gas inventories report yesterday, to reveal a 110 Billion cubic feet (Bcf) for stocks. A wide array of estimates were cast ahead of the report, ranging from 93 to 107 Bcf. NatGasWeather.com had predicted a 102-107 Bcf increase, while Tim Evans, an energy analyst at Citi Futures in New York, gave a 93 Bcf figure for Bloomberg.

“We continue to underestimate the market’s ability to get gas into the ground,” Stephen Schork, president of Schork Group Inc., said for Bloomberg. “It was a very large number and it was a bearish number.”

Stocks remain 27.4% below last year’s reading for the same period. The EIA, however, has suggested gains will continue to be above-average, and that most likely inventories will be completely replenished ahead of winter heating season.

NatGasWeather.com reminded that the 5-year average for next is only 73 Bcf, after 85 Bcf for this one. The group predicts an injection of about 100 Bcf in the report due next Thursday.