Commodities trading outlook: crude oil futures slide, natural gas climbs

WTI and Brent futures slid under pressure from disappointing Chinese figures today, while investors also kept an eye of developments over Ukraine. Meanwhile, natural gas futures climbed to reverse some of last weeks slump.

On the New York Mercantile Exchange, WTI crude for delivery in October fell by 1.49% to $91.90 per barrel by 14:04 GMT, having shifted in a daily range between a nine-month low of $91.82 and $93.62. The American crude benchmark fell by 1.23% on Friday to settle the week 2.7% lower.

Meanwhile on the ICE, Brent for settlement in the same month lost 1.32% to trade at $99.49, having ranged between a 15-month low of $99.36 and $101.00. The contract lost 0.99% on Friday to close at $100.82 a barrel, registering a 2.3% weekly loss. Brent’s premium to its US counterpart widened to $7.59.

Data by the Chinese customs administration showed on Monday that China’s exports surged by an annualized 9.4% in August, compared to analysts’ projections for an 8% growth. Inbound shipments marked a 14.5% expansion in July.

Meanwhile, imports contracted by 2.4% after sliding 1.6% in July, reflecting lower domestic demand. The figure defied analysts’ estimates for a 1.7% growth. As a result, the nation’s trade surplus widened to a record $49.03 billion, rebutting forecasts to narrow to $40.00 billion from $47.30 billion in July.

The Asian nation’s crude imports rose by 6% to 25.19 million tons in August from 23.76 million in July. Inbound shipments of oil product gained 36% to 2.53 million tons, while exports of the same category rose by 18.2% to 2.73 million tons.

“China’s slowing imports this morning did not help lift these concerns,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said for Bloomberg. “The Atlantic basin supply glut is still in place.”

Ukraine

A truce between Ukraine and pro-Russian separatists remained largely intact, albeit fragile, eroding gold’s safe haven appeal. Kiev and pro-Russian rebels met in Minsk, Belarus, last week signed a preliminary agreement for a ceasefire as well as a roadmap for lasting peace in the region.

Fresh fighting was reported on Sunday near the Donetsk airport, however, spurring fears that the truce might be short-lived. Earlier, one women was reported to have been killed and four injured on Saturday by shelling in Mariupol, a closely contested town.

European diplomats approved the Union’s broadest measure of sanctions against Russia on Friday. Hours after the Ukraine-rebels accord was signed, EU ambassadors sketched the bloc’s second package of economic sanctions, which bar Russian state-owned energy and defense companies from raising capital in the EU. The new penalties are pending EU national governments’ approval, due to be discussed today.

Russia’s Foreign Ministry warned that if new EU sanctions are imposed, Russia “certainly will respond,” Russian news agency ITAR-Tass reported.

“Youre not yet seeing a threat to supply,” Rob Haworth, portfolio manager at $124 billion US Bank Wealth Management, said for The Wall Street Journal. “Its going to take something to get a floor put in here.”

Natural gas

Front-month natural gas futures for settlement in October traded at $3.834 per million British thermal units (mBtu), up 1.08% for the day. Prices ranged from a monthly low of $3.761 to $3.853 per mBtu. The blue fuel was down ~7% for the week, as trading closed last Friday.

“Much larger than normal builds will line up for weeks to come and should provide strong bearish weather headwinds,” analysts at NatGasWeather.com wrote in a note to clients today. “Our bias remains to the downside and we still expect $3.75 to again be tested and likely taken out.”

Investors were weary of cool Canadian system, set to splash into the central US this week, eliminating much of the remaining cooling demand, and even spurring some localized early heating.

The net result of the system will likely be a much larger-than-average build for US natural gas inventories for next week, spelling the start of a bearish several weeks for the blue fuel, with low demand and big builds.

The US Energy Information Administration (EIA) reported last Thursday that US natural gas stockpiles added 79 billion cubic feet (Bcf) in the week ended August 29th, exceeding analysts’ projections for a build in the range of 72-76 bcf. At 2.709 trillion cubic feet, storage levels narrowed the deficit to the five-year average of the respective week to 15.4%, as inventories logged the twentieth consecutive week of above-average builds.

Analysts now project injections to come in excess of 90-100 Bcf, as the Fall shoulder season, generally September and early October, allow for massive gains for inventories, as the summer heat wanes and the winter cold has just not arrived yet.

US weather outlook

NatGasWeather.com projected a quite cool Canadian system tracking through the central and eastern US starting Wednesday this week, bringing temps down some 10-20 degrees over the Midwest, the Plains and later on, the East Coast. Temperature troughs could reach as low as 30-40 Fahrenheit, which could very well spur heating in some areas. The far South and the West will see mostly seasonal weather, and overall cooling demand will be dropping from moderate to low.

“An impressive Canadian weather system … will ease cooling demand significantly, which will likely last into early fall,” NatGasWeather.com wrote. “However, since temperatures will be very favorable for 100+ Bcf weekly nat gas builds, we think weather patterns will be considered quite bearish for much of September and potentially into October.”