Commodities trading outlook: crude oil and natural gas futures

WTI and Brent futures turned bullish during midday trade in Europe today, as investors continued sifting US oil inventories data. Meanwhile, natural gas futures were still in red as investors await the weekly EIA storage report.

WTI futures for November delivery on the New York Mercantile Exchange traded at $93.07 per barrel at 11:53 GMT today, up 0.29% for the day. Prices had ranged from $92.51 to $93.14 per barrel. The US benchmark added 1.4% on Wednesday.

Meanwhile on the ICE in London, November Brent stood at $97.17 per barrel, up 0.23%, with prices between $96.50 and $97.22 per barrel. The contract’s premium its US counterpart narrowed to $4.10. The contract also reached a 2-year bottom at $95.60 yesterday, though it soon reversed losses to close the session for a 0.10% gain.

Crude contracts were offered significant support yesterday, as the US reported draws at crude inventories, signaling demand in the world’s top consumer could be picking up.

US oil inventories

The EIA report, which covers the week through September 19th, revealed crude stocks had lost 4.3 million barrels, as compared with expectations of a 0.7m-1m draw. The result was, however, somewhat priced in, after the industry-funded American Petroleum Institute (API) had reported its separate readings for a 6.5m draw yesterday. The draw also marks the 14th weekly decrease out of 17, and is the biggest weekly decrease since mid-July.

Production of crude logged a minor increase to set a new highest level for the past 28 years at 8.867 million barrels per day. Meanwhile, imports of crude had dropped 16% on a weekly basis, after a surprise 7% increase of inbound shipments produced a crude glut in the US last week.

Stocks at Cushing, Oklahoma, the delivery point for the NYMEX West Texas Intermediate contract and the largest hub in the US, were little changed at 20.2 million barrels.

Gasoline stocks were down 0.4m, while distillates, a category which includes diesel and heating fuel, added 0.8 million barrels, largely meeting expectations.

Refineries operated at 93.4%, and gasoline production was slightly lower at 9.2m b/d, while distillates output averaged 4.9m b/d, same as last week.

Meanwhile, US-led air strikes on Islamic State (IS, ISIS, ISIL) targets in Syria continued last night, with the coalition targeting the insurgent’s refineries, in a bid to limit the group’s funding capabilities.

Middle East, OPEC

The broadening of action against ISIS was thought to widen the risk premium in crude prices, but it has so far failed to spook markets. Investors seem to regard the actions as positive for the security of the region.

Meanwhile, Iraq, OPEC’s second-top oil exporter and the most-hurt by ISIS country, actually logs increasing outbound shipments. Libya, also an OPEC member, also clocks soaring production after operations at its largest oilfield were resumed.

The growth in OPEC production adds to ample global supplies, which weighed on prices recently. Earlier this month, both the International Energy Agency (IEA), which consults developed nations on oil, and OPEC lowered projections of crude demand next year.

The forecasts produced speculation of an imminent OPEC output cut, as traders expect the cartel to move in the defense of the key $100 per barrel price level.

OPEC official moved to dispel speculation about a cut, but the group did lower its marketable oil expectations for 2015, signaling a decrease in production could follow as to meet market demand.

In a note released Wednesday, Citigroup lowered its 2015 forecast for WTI prices by $10 a barrel to $89.50, and by $7.50 a barrel to $97.50 for Brent.

Natural gas

Front-month natural gas futures for settlement in October traded at $3.865 per million British thermal units (mBtu), down 0.56% for the day. Prices ranged from $3.859 to $3.900 per mBtu. The contract added 2.49% on Wednesday.

“There could have been many reasons for the late rise yesterday, such as positioning going into today’s weekly EIA report, or the coming expiration of the October contract,” analysts at NatGasWeather.com wrote in a note to clients today. “Markets are again in a very interesting position where prices can spring 5-10¢ in either direction depending on if the weekly build meets the 95-98 Bcf estimate.”

The Energy Information Administration (EIA)’s weekly natgas storage report was on central stage today. Analysts expect a build of just under 100 billion cubic feet be logged for the week through September 19th. The next two weeks, however, will most probably see builds in the triple digits, as Fall shoulder season kicks in high gear.

Investors are closely monitoring a southbound cool Canadian system, due to reach the US in early October. The initial blast will be over low-natgas use states, though by the 6th the system will have moved over the Midwest, and the Northeast later on, adding to the possibility of sizable heating demand.

“This [system] most certainly will ease bearish weather headwinds, and depending on how sensitive the markets are to coming cold weather patterns, it could entirely erase them,” NatGasWeather.com analysts wrote. “If the colder [pattern] solutions were looking more convincing, it might be time to look for a buying opportunity. But they are not, and so we will be patient over the next few days.”

Meteorologists see strengthening high pressure over the southern US, already breaking into the Midwest and Northeast. As a result, temperatures across the regions will be rising to quite comfortable, allowing for bumper natgas builds in the following weeks. The West will have a cooler weekend, as offshore systems draft clouds and rains inland, cooling California and the region after the recent hot spell. Overall, US temps will be quite pleasant in the next few days and weeks, with little of either cooling or heating.