Commodities trading outlook: WTI, Brent futures climb, natural gas drops

WTI and Brent futures were higher during midday trade in Europe today, as tensions in Ukraine bumped up the risk premium ahead of key reports on US oil inventories. Meanwhile, natural gas futures bounced back down after rallying some 2.5% on Monday.

West Texas Intermediate futures for delivery in October traded at $93.56 per barrel, up 0.22%, at 12:22 GMT on the NYMEX. Prices ranged from $93.35 to $93.77 per barrel. The US benchmark dropped ~0.3% on Monday.

Meanwhile, October Brent on the ICE in London, stood for a 0.01% increase at $102.66 per barrel. Daily low and high were $102.56 and $102.97 per barrel, respectively. The contract’s premium to its US counterpart was $9.10. The European brand added ~0.3% yesterday.

Weekly readings on US oil inventories are due, with the private American Petroleum Institute (API) scheduled to report its figures later today, ahead of the official Energy Information Administration (EIA) report tomorrow.

A Bloomberg survey suggested crude stocks lost 1.8 million barrels in the week through August 22, while gasoline inventory levels dropped by 1.7 million.

Crude supplies reached a historic high in April and are still higher than average, with lackluster gasoline demand and booming crude shale production.

“Overall, the main theme in the market is we have ample supplies,” Gene McGillian, an analyst at wholesale brokerage Tradition Energy, said for the Wall Street Journal.

Ukraine, Middle East

Kiev reported a column of some 30 Russian armored vehicles entered its territory on Monday, engaging Ukrainian forces near the town of Mariupol, ahead of talks that would involve the Russian and Ukrainian presidents. Authorities said the military successfully repelled the attack, and separately said that 10 Russian military servicemen were captured.

Russian officials said the paratroopers had mistakenly crossed the border into Ukraine, the BBC reported.

Russian Foreign Minister Sergei Lavrov had earlier said there is plenty of “misinformation” coming from Kiev lately, denying allegations that Moscow is aiding rebels with equipment and personnel. He also said Moscow was planning to send another humanitarian convoy to the embattled zones, saying he has sent a note “informing” Kiev of Kremlin’s plans.

The first convoy caused international condemnation, Kiev dubbing it an “invasion”, as it entered rebel-held territory without permission from authorities in Kiev, who said it was used to help the separatists.

Russia is the world’s top energy exporter, and second-top oil exporter, and investors worried that shipments will be disrupted after Moscow started destabilizing Ukraine and the West responded with sanctions. Nothing has managed to curb exports so far, but some analysts see a new Cold War in the making.

Elsewhere, Iraqi oil continued flowing to export terminals as the country struggles to form a new government. The country pumped some 3 million barrels of crude daily, making it OPEC’s second-biggest exporter, as government forces and Kurdish Peshmerga continue battling the Islamic State, supported by US airstrikes.

Fighting has been contained to Iraq’s north, while the southern oilfields, which account for about 80% of Iraqi oil production, have been untouched by violence so far.

Meanwhile, Libya saw crude production rise to ~0.7 million barrels per day despite growing internal power struggles, which left devastation many dead in the capital, Tripoli, over the past several weeks.

Natural gas

Front-month natural gas futures for delivery in September traded at $3.916 per million British thermal units (mBtu), down 0.53%. Prices ranged from $3.906 to a two-week high of $3.959 per mBtu. The blue fuel added ~2.5% on Monday.

“We see little reason weather wise why prices would go over $4.00,” analysts at NatGasWeather.com said in a note to clients today. “It won’t be long before big fat 90+ builds are going to be pressuring the markets as deficits continue to diminish.”

Last week’s official US natgas storage report revealed 88 billion cubic feet (Bcf) were added to inventories in the week through August 15th. The build was larger than the expected 83 Bcf and was almost double the 5-year average gain for the week, while also marking the sixteenth straight week of higher-than-average injections.

This week’s report, which will cover the seven days through August 22nd, is expected to be leaner than the previous builds, though still quite larger than the average. 90+ Bcf builds are forecast to be returning as soon as next week, and triple digits will soon hit markets as well, as analysts agree that inventories will be fully replenished ahead of heating season, which typically starts in November.

NatGasWeather.com projected a couple more days of heat this week, before a cooler Canadian system tracks through the central US, lowering temp to comfortable across many of the high-demand states. The South will also slightly cool, though readings will remain seasonal. The northwestern states will see cool weather as storms track through the region, while California is set for a very hot second half of the week. Overall cooling demand will be moderate-to-high in the first half, easing to moderate later on.

“There is nothing in the data to suggest intense summer heat will be returning, especially to the northern US where much more comfortable temperatures could last for quite some time,” NatGasWeather.com said.