Commodities trading outlook: crude oil and natural gas futures

WTI and Brent futures remained in the red during midday trade in Europe today, as the strong dollar outweighed much of any bullish sentiment. Meanwhile, natural gas futures climbed, as investors eye a cold weather spell, projected for the northern US later this week.

WTI futures for November delivery on the New York Mercantile Exchange traded at $93.30 per barrel at 14:07 GMT today, down 0.26% for the day. Prices had ranged from $92.74 to $93.52 per barrel. The US benchmark added ~1.4% last week.

Meanwhile on the ICE in London, November Brent stood at $96.79 per barrel, down 0.22%, with prices between $96.27 and $96.92 per barrel. The contract’s premium to its US counterpart narrowed further to $3.49.

“Slow demand and more than ample supplies are the primary driver of this market,” Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut, said for Bloomberg. “The dollar pushing to a four-year high is adding to bearish factors.”

The major factor on crude prices recently has been the economic growth in top economies, and the discrepancy between supply and demand.

US economic growth was the top story last week, with the Commerce Department revising the growth figure for the second quarter to 4.6%, the highest in six years. Investors now look to the key employment figures later this week, to confirm a strong outlook for the world’s top oil-consuming economy.

Bumper US economic readings, however, in addition to supporting demand outlooks, boost the US dollar, which in turn drags on prices. The dollar reached a new four-year high against a complex of other major currencies today, and could strengthen even further.

More US housing data, factory orders and a key consumer confidence gauge, alongside retail sales, employment and CPI figures for the EU will cover a plethora of economic activities on both sides of the Atlantic.

Meanwhile, China, the world’s second-top oil consumer, will also have key PMI figures posted.

Rosneft, OPEC

On the supply side, Russian state-owned Rosneft, the world’s largest oil producer, announced a billion-barrel oil find in the Arctic was confirmed, signaling that Western sanctions, which explicitly targeted Moscow’s Arctic scope, will not impede expansion.

The announcement was a contributing factor to Monday’s crude prices retreat, as it adds to an already bearish situation.

OPEC and the International Energy Agency both lowered crude demand growth outlooks for 2015, while also noting ample supplies. OPEC also lowered its own marketable crude projection.

Investors are still closely looking at OPEC for cues on a potential production curb, as most OPEC members look to the $100 per barrel level as the lowest to meet budgetary expenses. The biggest member and de facto leader of OPEC, Saudi Arabia, however, has moved to dissuade markets of an imminent cut in output, as it seeks to keep a dominant market share.

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 last Wednesday, outlining the market sentiment going into Fall.

Natural gas

Front-month natural gas futures for settlement in November traded at $4.057 per million British thermal units (mBtu), up 0.69% for the day. Prices ranged from $4.011 to $4.084 per mBtu. The contract added ~3.2% last week.

The blue fuel clocked a significant gain last week, as investors looked past a sizable injection to natgas inventories in the US, and towards an ominous Canadian weather system, due to reach the US later this week.

The system could potentially drive temperatures highs to as low as 50, while overnight lows drop well below freezing. Though not exceptionally cold, the system boasts enough strength to scare the markets into an early heating hype, as investors are still more sensitive to cold forecasts, after the brutally cold winter last year.

“This cooler pattern will begin to unfold later this week. More importantly, there will be additional ones to follow which likely will be more intimidating and potentially of greater concern to the nat gas markets, especially if they usher in the first hard freeze of the season,” analysts at NatGasWeather.com wrote in a note to clients today. “We still have a few massive weekly builds to go,but this could be irrelevant if cold weather trumps all.”