Commodities trading outlook: crude oil and natural gas futures

WTI and Brent futures steadied for slight gains during midday trade in Europe today, as traders saw the recent slump as excessive, correcting some of the losses. Meanwhile, natural gas futures were poised for a weekly gain despite growing stockpiles in the US.

WTI futures for October delivery on the New York Mercantile Exchange traded at $93.12 per barrel at 11:19 GMT today, up 0.31% for the day and paring earlier losses this week. Prices ranged from $92.79 to $93.67 per barrel, while yesterday the contract reached a 16-month low at $91.22.

Meanwhile on the ICE in London, October Brent stood at $98.26 per barrel, up 0.18%, daily prices between $97.73 and $98.80 per barrel. October Brent’s premium to its US counterpart widened to $5.14. The European contract is on track to log a ~2.6% weekly drop, reaching a 26-month low of $97.60 yesterday.

“Oil prices look to be bottoming now following the rather steep sell-off over the past week,” Jens Naervig Pedersen, an economist at Danske Bank A/S in Copenhagen, said for Bloomberg. “Some upside risks prevail due to the re-escalating geopolitical tensions.”

Earlier today contracts were supported by upbeat data from China, the world’s second-top oil consumer, which logged almost double the amount of new loans in August, paring some of the negative readings from this past week.

Now investors look to fixed asset investment, retail sales and industrial production figures for China due tomorrow.

Prices have been grinding lower this week, as bearish outlooks on global demand spread ahead of the International Energy Agency’s monthly report. The agency, which consults developed nations on oil matters, cuts its forecasts for oil demand growth for this year and 2015 by 150 000 and 100 000, respectively, to 900 000 in 2014 and 1.2m next year.

Meanwhile, Saudi Arabia said it is not planning a cut in output to accommodate a higher global price for crude, dispelling speculation that such a move will come to support prices soon. The country did, however, report a slowdown in production for August, though growing exports from Iraq and Libya more than accounted for it.

OPEC also lowered the projected volume of crude it would market next year, as global demand was seen slowing, supporting IEA’s outlook.

“The recent slowdown in demand growth is nothing short of remarkable,” the agency said.

IEA’s forecast cut comes as a separate US outlook proposed growing supplies, further pressuring crude. The Energy Department’s statistics arm, the Energy Information Administration, said oil prices next year will be lower as US crude output reaches a 45-year peak.

Natural gas

Front-month natural gas futures for settlement in October on the New York Mercantile Exchange traded at $3.842 per million British thermal units (mBtu) at 11:26 GMT, up 0.50% for the day. Prices ranged from $3.825 to $3.849 per mBtu. The contract is headed for a ~1.4% weekly gain, despite a ~3% drop on Thursday.

“We clearly see weather patterns as being strongly bearish to prices beginning later this weekend,” analysts at NatGasWeather.com wrote in a note to clients today. “There is little reason to buy into early season winter hype as hefty builds should continue to rule.”

Yesterday, the US Energy Information Administration (EIA) reported the build at natural gas inventories for the week ended September 5th to be quite higher than expected at 92 billion cubic feet (Bcf). The figure also represents the 21st straight week of above-average injections and narrowed the deficit to the same-week 5-year average to just 14.2% at 2.801 trillion cubic feet of natural gas in storage.

This week’s cold spell will likely have a positive impact on upcoming natgas inventory builds, further adding to momentum as the market enters Fall shoulder season.

“We expect next week’s build to come in around 90-95 Bcf , and the ones after to be over 100+ Bcf,” NatGasWeather.com said.

US weather outlook

The cool Canadian system which brought the first snowfall to the US this week has reached the far Southeast and lost much of its potency, with temperatures already starting to climb. Another cool front, however, is advancing through the Great Lakes and will bring reinforcing cool to the Northeast and the northern Midwest, killing most of any cooling and prompting some light heating. Southern California temps are nearing record highs, meanwhile, driving some significant cooling in the highly populated region.

“Weather patterns will be very comfortable overall and much larger than normal builds will be lining up for the rest of September,” the analysts at NatGasWeather.com added. “Waning late September sun will limit the amount of cooling needed.”