Commodities trading outlook: crude oil and natural gas futures

WTI futures climbed during midday trade in Europe today, while Brent was lower, as investors eye upcoming reports on US inventories. Meanwhile, natural gas futures soared as a cool Canadian weather system was seen spurring early heating demand.

WTI futures for October delivery on the New York Mercantile Exchange traded at $93.19 per barrel at 14:02 GMT today, up 0.57% for the day. Prices ranged from $92.75 to $93.94 per barrel. The US benchmark dropped 0.68% on Monday, reaching a nine-month low at $91.80.

Meanwhile on the ICE in London, October Brent stood at $100.04 per barrel, down 0.16%, daily prices between $99.57 and $100.62 per barrel. October Brent’s premium to its US counterpart narrowed to $6.85. The European benchmark dropped 0.61% on Monday, reaching a 16-month low of $99.36.

Prices reached multi-month lows on Monday, as investors saw a bearish Chinese foreign trade report spell a gloomy outlook for oil demand in the second-top consumer, after a similarly disappointing US payrolls figure was seen hurting crude on Friday.

Investors now eye upcoming US oil inventories hard data to gauge demand in the world’s top oil consuming economy.

The industry-funded American Petroleum Institute (API) is due to release its independent readings today, ahead of the official Energy Information Administration (EIA) log on Wednesday.

A Reuters poll suggests crude stocks fell by 1.5 million barrels in the week through September 5.

Last week’s EIA report showed a 0.9m-barrel draw for crude and a 2.3m decline in gasoline stocks, while distillates added 0.6m.

“There are some estimates that the inventory draw will be higher than what’s currently expected,” Ole Sloth Hansen, an analyst at Saxo Bank A/S in Copenhagen, said for Bloomberg. “U.S. demand is healthy as refinery margins have been solid for months and the economy continues to improve.”

Investors will be increasingly shifting focus on EIA’s distillates figure. Demand for distillates, a category which includes diesel and heating fuel, would be growing as winter draws by, pumping up heating demand.

Meanwhile, geopolitical tensions around the globe failed to halt the complete removal of crude price’s risk premium.

Ukraine, Middle East

Ukraine’s conflict was in the heart of significant price fluctuations earlier this year, but by now investors have grown resilient towards speculation that the tensions between Russia, the world’s top energy producer and exporter, and the West will lead to globally negative ramifications for crude oil.

Even the adoption of further economic sanctions targeted directly at leading Russian oil companies failed to affect the global benchmark.

The EU said the new measures were agreed upon, but would come into effect “some days into the future” signaling that the real application of the new sanctions depends on Moscow’s stance in Ukraine’s peace process.

Meanwhile, Middle Eastern producers continued exports unaffected by a number of conflicts, with output rising in both war-torn Libya and insurgent-afflicted Iraq.

“Investors moved into oil in June looking for a hedge against the uncertainty in Iraq,” Harry Tchilinguirian, global head of commodity markets strategy at BNP Paribas, said for the Financial Times. “But this unraveled when production remained intact. The return of Libyan production has really helped to move the price lower and has extended the deleveraging process out of oil.”

Investors now eye any moves by OPEC, and most probably Saudi Arabia, the world’s leading oil exporter, as the $100 per barrel price has been set as benchmark for OPEC, suggesting the organization would act in order to support it.

Saudi Arabia will probably be switching off some production to bump up prices, though any announcement is yet to be made.

Natural gas

Front-month natural gas futures for settlement in October traded at $3.989 per million British thermal units (mBtu), up 2.92% for the day. Prices ranged from $3.853 to $4.016 per mBtu. The contract added 2.19% on Monday after logging a monthly low at $3.761.

“Yesterday’s rise could have been nothing more than some profit taking from big market players combined with a little hype for early season cooler than normal temperatures,” analysts at NatGasWeather.com wrote in a note to clients today. “Our bias remains to the downside, but with caution as recent oversold conditions and less bearish weather try to work in concert to support prices.”

Investors now shift focus to an incoming cool Canadian system, which will track through the central and northern US in the coming days, lowering temps by 10-20 degrees in places.

This early cold spells heating demand to start early, though it will probably not last and will not have a serious impact on upcoming inventories builds.

Analysts project this Thursday’s EIA report will post the 21-st straight week of above average builds for natgas inventories, after last week the deficit to the 5-year average volume was narrowed to only 15.4%, down from a record 50% in March.

“It is not unreasonable to think there are potentially at least 7-8 straight weeks of fairly big builds to come, with most, if not all, being much larger than normal,” the analysts at NatGasWeather.com wrote.