Commodities trading outlook: crude oil futures drop, natural gas swings

Both West Texas Intermediate and Brent crude benchmarks fell on Tuesday on fears that slowing global economic growth will ease demand, while the US dollar halted its steepest decline since January.

US November crude slid 1.07% to $89.37 per barrel by 14:26 GMT, having ranged between $90.57 and $89.36 during the day. The American crude benchmark rose by 0.67% on Monday to close the day at $90.34 a barrel. The contract fell to a 1-1/2-year low of $88.18 on Thursday and settled last week 4% lower, reversing gains in the previous two five-day periods.

Meanwhile on the ICE, Brent for settlement in the same month fell by 1.09% to $91.78. Prices held in a daily range between $92.99 and $91.73 a barrel after closing 0.52% higher at $92.79 on Monday. The contract slid almost 5% last week, the most since April 2013, marking its fourth weekly decline in five. Brent’s premium to its US counterpart narrowed to $2.41 from Monday’s close at $2.45.

Weakening economic growth and no signs of OPEC members scaling back their crude output kept markets under pressure. The US dollar sharply falling on Monday had helped oil prices to regain some of the lost ground, but with the US dollar index stabilizing on Tuesday, the oil market was set for more downside.

Destatis reported on Tuesday that Germanys industrial production contracted by 4% in August, the most since 2009, in the latest sign of deteriorating economic conditions in the leading EU economy. This comes after a downward-revised 1.6% expansion in July, while analysts had projected a moderate 1.5% decline in industrial output.

Meanwhile, the International Monetary Fund trimmed its global economic growth forecast to 3.8% next year, down from the previously expected in July 4.0%, following a 3.3% growth projection for 2014.

Separately, data by the Intercontinental Exchange showed that the number of net Brent long positions fell by nearly a sixth to 36 704 in the week ended September 30th, the lowest since early-October 2011.

Market players also eyed upcoming US supply data to gauge demand in the world’s top consumer. According to a Bloomberg survey of analysts ahead of EIA’s weekly report, US crude oil inventories are expected to have risen by 2 million barrels in the seven days through October 3rd, while distillate fuel inventories probably dropped by 1.5 million barrels. Gasoline supplies likely fell for a fourth consecutive week, by 500 000 barrels, while refineries operated at 89.0% of their operable capacity, down from 89.8% during the preceding period.

The American Petroleum Institute will release its separate private report on US oil inventories later today.

Natural gas

Natural gas swung between gains and losses as previous projections for a cold spell to hit large parts of the US in the third week of October gave way to more moderate weather forecasts, scaling down expectations for rising heating demand and paving the way for larger inventory builds. Market players anticipated another triple-digit inventory build.

On the New York Mercantile Exchange, natural gas futures for November settlement rose by 0.87% by 13:30 GMT to $3.932 per million British thermal units after trading on the red for most of the day. Prices ranged between $3.938 and $3.866, the lowest since September 24th. The power-station fuel slid 3.5% on Monday, the most since September 2nd, to close at $3.898 per mBtu.

Short-term weather forecasts called for mostly seasonal or little-below-average temperatures across the central US and Northeast, which were previously expected to experience much colder temperatures that would induce heating demand. At the same time, weather data for later in the month, albeit being messy, no longer supported speculations for freezing temperatures across some high-consuming areas, allowing for higher inventory builds.

According to NatGasWeather.com, cooler air will push into the central US and Northeast today and on Friday, coupled with showers and thunderstorms. However, the cold blasts will not be strong enough to bring freezing temperatures, thus limiting heating demand. At the same time, the southern and western portions of the country will remain very warm with highs reaching the upper 80s and lower 90s, driving moderate cooling demand.

During the third week of October a very active pattern will bring a large number of weather systems carrying showers, thunderstorms and below-normal temperatures across most of the US, but no drastic drop in temperatures is expected to occur. The pattern could play out in different ways but, generally, readings across the north-central US and Northeast are projected to be only slightly cooler than usual, while the southern and western regions will enjoy slightly warmer-than-usual weather.

“If there was follow through toward colder patterns for the third week of October, we believe weather sentiment would have become moderately bullish,” NatGasWeather.com analysts wrote in a note on Tuesday. “The weather data is now all over the place in a messy pattern where numerous weather systems will track across the US with showers and cooler temperatures, yet none will be able to tap cold enough northern Canadian air to drop temperatures into the 20s.”