Commodities trading outlook: crude oil and natural gas futures extend slide

WTI and Brent futures were pressured further down during midday trade in Europe today, as investors disregarded growing tensions in Ukraine and in the Middle East. Meanwhile, natural gas futures also slid lower as weather patterns project some comfortably cool days for the US.

West Texas Intermediate futures for delivery in October traded at $94.87 per barrel, down 1.14%, at 13:03 GMT on the NYMEX. Prices ranged from $94.77 to $95.91 per barrel. The US benchmark added 2.4% last week, Monday being closed for US Labor Day holiday.

Meanwhile, October Brent on the ICE in London, stood for a 1.12% drop at $101.64 per barrel. Daily low and high were $101.51 and $102.86 per barrel, respectively. The contract’s premium to its US counterpart narrowed to $6.77. The European brand dropped 0.4% on Monday after adding ~0.9% last week.

Ongoing conflicts involving key oil players failed to lift prices on Monday, as investors dismiss risks of supply disruptions.

Commerzbank did note, however, а 1 000 increase of net long positions on Brent in the week to August 26, betting that the price would go up.

“This was the first position build for four weeks and only the second in the last nine weeks. During this time, net long positions have plummeted by more than 70% to a two-year low,” they wrote.

Ukraine, Middle East

The conflict in Ukraine saw hopes of a peaceful resolution dashed on Monday, after rare peace talks between rebels and authorities broke down without any agreement.

The meeting in Minsk, Belarus, failed to produce any result, though the rebels were seen as softening their demands, backing off from a complete independence claim and now seeking self-rule within a federative Ukraine. The level of autonomy, however, was seen as excessive by Kiev, as separatists demand to have complete security, judicial and economic control, including deepening of economic ties with Russia.

Meanwhile, government forces continued losing ground on Monday, as Kiev said Russia is now waging a “great war” with Ukraine.

Moscow has been widely accused of supplying rebels with hardware and personnel, as well as expertise. NATO has presented many satellite images showing Russian military vehicles moving in Ukraine, and Russian military servicemen have been captured in Ukraine on more than one occasion.

The Kremlin denies all accusations. It should be noted that in March this year, Russian President Putin also dismissed accusations that Moscow had sent troops to Crimea, only to later admit it was Russian soldiers who took over the peninsula.

Russia is the world’s second-top oil exporter, and the conflict was seen as a threat to Russian shipments. Investors, however, now seem more adamant in the face of supply risk in regards of Ukraine.

Elsewhere, Libyan authorities acknowledged they had lost control of the capital Tripoli to Islamist militias. The country, which holds Africas largest crude reserves, managed to restore some of its output in recent months, reaching some 700 000 barrels per day, is now facing a possible slump in produced volumes as authorities face an Islamist onslaught. Meanwhile, Iraqi oil continued flowing despite gains made by the Islamic State, as investors have now almost completely scratched off Iraq risk premium.

“All eyes are on the demand side, and weaker statistics for example in China are bearish,” Bjarne Schieldrop, chief commodity analyst in Oslo at SEB AB, said for Bloomberg. “The increase in tension between Russia and Ukraine is bearish for oil” because economic sanctions on Russia may eventually result in an economic slowdown in Europe.

Natural gas

Front-month natural gas futures for delivery in October traded at $3.973 per million British thermal units (mBtu), down 2.26%. Prices ranged from $3.965 to $4.078 per mBtu. The contract added ~4.3% last week.

“Recent price action has shown the markets seem to be moving on much smaller weather time frames compared to the winter season,” analysts at NatGasWeather.com wrote in a note to clients today. “If this is the case, then this week could still provide support to prices” in light of a “pathetic attempt” of a tropical storm in the far-southern Gulf of Mexico, temps climbing briefly midweek, and a small upcoming natgas build.

The group projects this week’s report will reveal a build of some 70 billion cubic feet for natural gas inventories in the US, which would be the smallest build this summer season. It would still be quite larger than the average, and mark the twentieth week of above-average injections for natgas stocks.

The analysts add, however, that the builds after this week will be coming at 80Bcf+, pressuring the blue fuel lower as inventory levels head for near-complete replenishment ahead of winter heating season, which typically starts in November.

US inventory levels are a major driver for natural gas prices, as they indicate the supply and demand in the world’s top natgas consumer, accounting for more than 21% of total demand. Booming shale production and more comfortable temperatures this summer allowed for consistently bigger than average builds.

NatGasWeather.com projected milder and more comfortable temps across the northern US in the coming days, as a cooler Canadian system sweeps through, after the surge in temperatures the East Coast is currently experiencing. The South will remain relatively warm, and might see more heat later in the week, though another cool system will pare any significant temperatures. Overall cooling demand in the next seven days should be moderate.