Commodities trading outlook: crude oil and natural gas futures

WTI and Brent futures were higher ahead of the official US oil inventories report, as tensions in Ukraine rose today, with more reports of Russian armor with the rebels. Meanwhile, natural gas futures broke through the $4 barrier as heat in the US pushed up cooling demand.

West Texas Intermediate futures for delivery in October traded at $94.10 per barrel, up 0.26%, at 13:50 GMT on the NYMEX. Prices ranged from $93.75 to $94.24 per barrel. The US benchmark added 0.5% yesterday.

Meanwhile, October Brent on the ICE in London, stood for a 0.38% increase at $102.89 per barrel. Daily low and high were $102.42 and $103.07 per barrel, respectively. The contract’s premium to its US counterpart narrowed to $8.79. The European brand dropped 0.1% on Tuesday.

Investors eye the official US Energy Information Administration (EIA) weekly oil inventories report, which is due later today and will cover the week through August 22. The American Petroleum Institute, an industry group, reported its readings on oil supplies, saying crude stocks 1.3 million-barrel drop for crude, a 3.2m decline in gasoline inventories and 2.4m increase for distillates.

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. Meanwhile, a Wall Street Journal poll projected a 0.9m drop for crude and 1m decrease for gasoline.

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

“We are seeing softer-than-expected demand and in the absence of any further disturbing developments in geopolitical areas, the pressure remains on the energy complex,” Michael McCarthy, chief strategist at CMC Markets in Sydney, said for Reuters.

Ukraine

Ukrainian President Petro Poroshenko met with his Russian counterpart in Minsk, Belarus, yesterday, as the push towards a ceasefire met support from both sides, and from the West.

The meeting took place the day after 10 Russian military servicemen were captured in Ukraine. Moscow said the group had entered Ukraine “by accident”, but the soldiers themselves said Russia should stop sending troops in Ukraine. Elsewhere, a column of some 100 armored vehicles was reported sighted in rebel-held territory, which were “obviously Russian”, Ukrainian sources said.

Earlier, Kiev reported its army had won a skirmish with several dozen armored vehicles, which entered Ukraine from Russia, and were said to be manned by the Russian military disguised as Donbas rebels.

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 earlier this year 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, Libyan and Iraqi oil exports were unimpeded by the ongoing conflicts in the country, while Israel and Gaza officials were said to have agreed a long-term peace deal yesterday, calming fears for the world’s most violent region.

Natural gas

Front-month natural gas futures for delivery in October traded at $4.007 per million British thermal units (mBtu), up 1.47%. Prices ranged from $3.965 to $4.013 per mBtu. The blue fuel dropped 0.8% on Tuesday, though it did reach a 2.1/2-week high at $4.021.

“We expect $4.00 to continue to remain as strong resistance, not that it can’t be taken out,” analysts at NatGasWeather.com said in a note to clients today. “Prices are tricky short term with two leaner builds coming, which could provide modest support.”

This week’s Energy Information Administration (EIA) report, due on Thursday, will cover the week through August 22 and is expected to show ~80 Billion cubic feet (Bcf) of natural gas were added to US inventories, which would among the smaller builds this summer, though still quite bigger than average. Next week’s build is also expected to be leaner, as several days of warm temps over the northern US drive fairly strong cooling demand.

High temperatures in the summer generally prompt increased cooling demand, which in term bumps up overall natural gas consumption, as 30% of all US natgas is burned in power stations, generating electricity for air conditioners, among all other things.

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.

US weather outlook

NatGasWeather.com projected easing temps over the southern and central US in the coming days, as the cool Canadian system that tracks through the Midwest and Northeast. The system will be off the mainland by next week, allowing for high pressure to again build up and bump readings up a notch. Overall cooling demand will be moderate-to-high in the first half, easing to moderate later on.

“We see strong summer high pressure starting to show signs of weakening as the fall season inches closer,” NatGasWeather.com said. “There is nothing in the data to suggest intense summer heat will be returning”