Commodities trading outlook: crude oil and natural gas futures

WTI and Brent prices were still higher during midday trade in Europe today, as tensions around the globe fomented investors risk-off mentality. Meanwhile, natural gas futures were higher, as traders expect some rise in US temperatures, lifting cooling demand.

WTI futures for settlement in September on the NYMEX traded at $97.53 per barrel at 8:02 GMT, up 0.20%. Prices were between $97.35 and $98.45 per barrel. The contract added 0.43% and was headed for a ~0.2% weekly drop.

Meanwhile, September Brent on the ICE was at $105.75 per barrel, up 0.29%. Prices ranged from $105.61 to $106.85 per barrel. Brent’s premium to WTI was at $8.22, after Thursday’s closing margin of $8.10. Brent’s September contract added 0.81% yesterday and was on course for a weekly gain of ~0.8%.

Iraq was again in the spotlights of financial markets, after US President Barack Obama announced the US will be carrying out air strikes on militants of the Islamic State (IS), should they threaten its personnel in autonomous Kurdistan in the north of the country. President Obama dismissed the possibility of sending in ground forces, saying he would not let the US be dragged in another war in Iraq.

The move comes as the international community was growing more concerned with the security of civilians in Iraq, with UN Secretary-General Ban Ki-moon saying he was “deeply appalled”, and Pope Francis urging the international community to do more to protect innocents.

Iraq is OPEC’s second biggest oil exporter, with an output of about 3 million barrels daily. Most of it comes from the south of the country, widely seen as safe from militants. Some 200 000 barrels per day are produced in the north of the country, in autonomous Kurdistan, which is now in bitter fights with IS.

Elsewhere, Russia responded to Western sanction by introducing its own limitations to foreign trade on Thursday. Russian Prime Minister Dmitry Medvedev said Russia bans the import of meat, fish, dairy products, fruit and vegetables from the US, EU, Canada, Australia and Norway for a period of 1 year.

Meanwhile, NATO chief Anders Fogh Rasmussen said Ukraine’s freedom and future were “under attack,” promising support against Russian “aggression”, the BBC reported. Russia “should not use peace-keeping as an excuse for war-making.”

Russia is the world’s leading energy exporter, and the souring of relations with the West has so far not affected natural gas and oil exports. Some analysts, however, are seeing a new Cold War in the making, and every rise in tensions worries investors.

In a day of intense geopolitical tensions around the globe, the conflict in Gaza flared back to life, after the 72-hour truce expired without an agreed extension late on Thursday. Renewed rocket attacks and Israeli air strikes marked the resumption of military actions.

Israel had proposed an unconditional extension to the ceasefire, demanding a full demilitarization of Gaza in order to lift the suffocating blockade of the enclave. Hamas declined the offer, saying its fighters are ready for a “long war”.

Since the conflict sparked back to life exactly one month ago, more than 1800 Palestinian, mostly civilians, and 67 Israelis have died.

Natural gas

Natural gas futures for delivery in September traded at $3.909 per million British thermal units (mBtu) at 12:29 GMT on the NYMEX, up 0.85%. Prices ranged from $3.872 to $3.910 per mBtu. The contract was poised for a ~3% weekly increase, despite dropping 1.45% on Thursday.

The US Energy Information Administration (EIA) posted its weekly reading on US natgas storage levels yesterday. The report revealed a build of 82 billion cubic feet (Bcf), which was in line with expectations, and compares to a 49 Bcf average gain for the past five years.

“There will be abundant much colder than normal Canadian air lurking just across the border from August 15 through August 21,” analysts at NatGasWeather.com, who correctly projected this week’s gain, said in a note to clients. “Moderately bearish weather and EIA builds continue.”