Commodities trading outlook: crude oil and natural gas futures

Brent futures were lower during midday trade in Europe today, WTI regained earlier losses. Continued fighting in Iraq failed to lift crude contracts, as traders felt the country’s main oil industry in the south was unhindered by the conflict. Meanwhile, natural gas futures gained.

West Texas Intermediate futures for settlement in August traded for $105.58 per barrel at 13:25 GMT on the New York Mercantile Exchange, down 0.15%. Prices ranged from $105.06 to $105.76 per barrel. The US contract lost about 1% last week.

Meanwhile on the ICE in London, Brent futures due in August stood for a 0.63% drop at $112.59 per barrel at 13:26 GMT. Daily high and low stood at $113.30 and $112.31 per barrel, respectively. Brent’s premium to WTI stood at $7.01, after Friday’s closing margin of $7.56. The European contract dropped about 1.3% last week.

“Prices are trending down this morning on market relief that oil supply from Iraq is not yet affected by the fighting and unrest in the country,” Michael Poulsen, analyst at Global Risk Management Ltd. in Middelfart, Denmark, said in a report cited by Bloomberg.

Iraq

The Sunni-extremist Islamic State in Iraq and the Levant (ISIS) declared the creation of an Islamic state (Caliphate) stretching from Aleppo in Syria to Diyala in Iraq, the BBC reported. The organization demanded all Muslims “pledge allegiance” to its leader and “reject democracy and other garbage from the West”.

Meanwhile, the Iraqi army continues fighting Sunni militants across the country. The military began a strategic offensive against the insurgent-held northern city of Tikrit, but have so far failed to capture it, the BBC reported.

Elsewhere, Israel called for the creation of an independent Kurdish state.

The Kurds “are a nation of fighters and have proved political commitment and are worthy of independence,” Israeli Prime Minister Benjamin Netanyahu said.

The autonomous Kurdish state within Iraq has only recently come under hostile actions by ISIS, and is seen as stout bulwark against the insurgents.

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.

Natural gas

Front month natural gas futures, due in August, added 0.23% at the New York Mercantile Exchange to trade for $4.419 per million British thermal units at 13:27 GMT today. Prices ranged from $4.438 to $4.397 per mBtu. The contract dropped about 3% last week, reaching a monthly low at $4.375 per mBtu on Friday.

Futures declined on Friday in spite of weather forecasters predicting seasonal or higher-than-seasonal reading across the US following EIA’s bearish natural gas storage report on Thursday. The government agency revealed a 110 Billion cubic feet (Bcf) jump in stocks during last week. 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.

Total gas held in underground storage hubs was still 27.4% lower than last year’s levels during the comparable period. However, the EIA 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 reported on Friday that the US will see high pressure building up over the Midwest and Northeast, allowing for rising temperatures, which will reach into the 90s. A cooler system is moving eastwards through the Rockies, but will hardly impact readings as high pressure over the northern Plains will dampen much of its potency. However, the system will probably push readings down a few degrees later next week. Overall cooling demand will probably remain moderate-to-high.

In the 8-14 day outlook, NatGasWeather.com projects a warmer trend for the US. The high pressure over the southern US will expand into the North, lifting temperatures after the cooler system passes by. The southern, western and central US will see triple-digit readings.