Commodities trading outlook: crude oil and natural gas futures

WTI was higher during midday trade in Europe today, while Brent was on level with the previous close. Investors now eye reports on US oil inventories later today and tomorrow. Meanwhile, natural gas futures were lower, as traders expect another sizable injection for stockpiles.

West Texas Intermediate futures for settlement in August traded for $105.83 per barrel at 13:22 GMT on the New York Mercantile Exchange, up 0.44%. Prices ranged from $105.43 to $105.93 per barrel. The US contract dropped 0.35% yesterday, after losing about 1% last week.

Meanwhile on the ICE in London, Brent futures due in August stood for a 0.03% gain at $112.39 per barrel. Daily high and low stood at $112.83 and $112.26 per barrel, respectively. Brent’s premium to WTI stood at $6.56, after last sessions closing margin of $6.99. The European contract dropped 0.83% on Monday, after a further 1.3% loss last week.

China outlook

Two separate reports on manufacturing PMI for June in China, where 11% of all oil is consumed, were released earlier today. HSBC confirmed its positive reading for the factory sector, logging a 50.7 reading, after its preliminary 50.8 of last week. A reading of 50 or higher means expansion of economic activities, and vice versa. The bigger the distance from 50, the greater the pace of contraction or expansion.

Meanwhile, the Chinese government posted its own reading on June’s manufacturing PMI, for a standing of 51.0.

Thursday will see services PMI readings, again from both sources.

“Concerns over a possible hard landing of China’s economy are easing, thus reducing one of the macroeconomic risks to global oil demand growth,” Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London, said by e-mail for Bloomberg.

US reports

The private American Petroleum Institute will post its weekly readings on US oil inventories later today, before the official Energy Information Administration (EIA) report tomorrow.

The US economy will also reveal key information this week. ISM’s final reading on manufacturing PMI for June will be released today. Analysts predict a standing of 55.8, after the 55.4 of May.

A separate report on May factory orders is due on Wednesday, which are also projected to have grown. ISM will post its non-manufacturing PMI for June on Thursday, and experts suggest accelerating growth in the services sector as well.

Thursday will feature the key report on employment for June. The unemployment rate is set for an unchanged 6.3%, while nonfarm payrolls have probably added 210 000 – 213 000, after a 217 000 figure for May. Payrolls are a leading indicator for the overall health of the economy.

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 yesterday. 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.

Militants control swathes of northern Iraq and eastern Syria, after a quick advance surprised the Iraqi army, which withdrew mostly without fights.

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, dropped 0.99% at the New York Mercantile Exchange to trade for $4.417 per million British thermal units at 13:24 GMT today. Prices ranged from $4.456 to $4.403 per mBtu. The contract added 1.18% on Monday, after having dropped about 3% last week, when a monthly low at $4.375 per mBtu was reached.

“As we get close to July and August, the peak-demand months, we should expect some heat,” Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami, said for Bloomberg. “We sold off pretty hard last week after another triple-digit injection. We will see what July brings, but we are going to have another triple-digit this week and we will probably have another one the following week because the Fourth of July.”

NatGasWeather.com reported on Monday 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. 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. The southern, western and central US will see widespread triple-digit readings. The northern states will see a couple of cooler systems push in, though a significant cooling is not expected.