Commodities trading outlook: crude oil rises on China demand, natural gas slides amid mild weather

Both West Texas Intermediate and Brent benchmark crudes rose on Tuesday as investors weighed rising Chinese oil demand against ample supply and concerns of slowing global economic growth. Expectations for a drop in US refined product supplies also lent some support. Natural gas hovered near the lowest in 11 months amid forecasts for mild weather throughout October.

On the New York Mercantile Exchange, WTI crude for delivery in December traded at $82.74 per barrel at 14:18 GMT, up 1.01% on the day. Prices held in a daily range of $83.23-$81.77 a barrel. The US crude benchmark fell by 0.18% on Monday to $81.91, snapping two days of advances.

Brent futures for settlement in the same month were up 0.62% at $85.93 a barrel, having ranged between $86.48 and $85.10 during the day. The contract fell 0.9% on Monday to $85.40 and traded at a premium of $3.50 to its US counterpart, compared to Monday’s close at $3.49.

Oil prices drew support on Tuesday after China’s National Bureau of Statistics reported a jump in Chinese oil demand. Implied oil consumption rose by 6.2% on a monthly basis in September to 10.3 million barrels per day, the highest since February, as imports and throughput rose to the second-highest this year.

Refiners processed around 42 million tons of crude oil last month, marking a 9.1% annualized rise, the biggest jump since June 2013.

Also fanning positive sentiment, China’s industrial production expanded by 8.0% in September from a year earlier, exceeding analysts’ projections for a 7.5% growth from the preceding month’s 6.9% annualized expansion which was the slowest in more than five years. With industrial output steadily growing, Chinese crude oil demand is expected to continuously rise, which however is not anticipated to play a major role in the short-term given the ample global supplies.

However, a slowdown in China’s Q3 GDP growth below the government’s officially targeted 7.5% rate of expansion refueled fears of a stalling global economy. The Asian economy grew by an annualized 7.3% in the third quarter, the lowest since Q1 2009, compared to 7.5% in the second quarter. Although the reading beat broad analysts’ expectations for a slowdown to 7.2%, it still added to bearish sentiment after the IMF cut its global economic growth forecast for 2015, while the IEA trimmed its global oil demand growth estimate for 2014.

Christopher Bellew, a trader with Jefferies Bache, said for CNBC: “The Chinese data was not as dire as was expected. But looking forward, I think well see more pressure to the downside. These lower prices will take a while to have any impact on supply.”

US crude supplies

The market also drew some support ahead of US supply data that is expected to show a drop in stockpiles of refined products. According to a Bloomberg survey of analysts, motor gasoline inventories are projected to have fallen by 1.45 million barrels in the week ended October 17th to 204.2 million, the lowest in two years. Distillate fuel supplies likely slid by 1.5 million barrels, while crude oil stockpiles are expected to have risen by 3 million barrels to 373.6 million.

The American Petroleum Institute will release its separate private data at 20:30 GMT.

Market players also watched closely for any shift in OPEC’s production policy but its biggest producers have indicated their reluctance to lower output and lose market share, and instead responded with price cuts.

Venezuela’s foreign ministry said on October 10th that the country will seek an extraordinary OPEC meeting to discuss falling prices. However, oil ministers from Kuwait and Algeria dismissed possible output reductions. Ali al-Omair, Kuwait’s oil minister, said for the official Kuwait News Agency that while producers would like higher prices, there was “no room” to achieve that by cutting output.

The 12 members are set to meet in Vienna on November 27th and any cut in output before that is rather unlikely.

Natural gas extends slide

Natural gas fell for a sixth day and traded near the lowest level since mid-November as weather agencies forecast overall comfortable temperatures across most of the US throughout October.

Natural gas for delivery in November slid 0.27% to $3.660 per million British thermal units by 14:26 GMT, having earlier fallen to an 11-month low of $3.631. The contract fell for a fifth consecutive day on Monday, having closed 2.55% lower at $3.670.

According to NatGasWeather.com, natural gas demand over the next seven days will be low-moderate compared to normal, with weather throughout October expected to keep a neutral trend.

Another weather system is expected to track across the Great Lakes and Northeast today, carrying showers and pushing temperatures to slightly below normal throughout the week. Overnight lows, as previously reported, will drop to the 40s and 30s with localized freezes, before the system gradually weakens.

However, the rest of the US will enjoy mostly comfortable little-above-average temperatures, inducing only light heating and cooling demand. Highs over the Southwestern US and Plains will reach again the 70s and 80s over the next seven days.

Market players’ focus remained on how weather patterns will play out in the beginning of November when cooler Canadian air will approach the northern US. It is still unclear how much of it will track across the US. There could be widespread freezing conditions, but the system may also end up contained in the far west, leaving the Northeast and other high-consumption regions unaffected. Weather data is not concrete enough to show how far will the Canadian cold air pool spread, giving the markets little reason to rally before the end of October.

“It remains up to early November weather patterns to bring colder temperatures if builds are going to keep pace with falling weekly averages,” NatGasWeather.com analysts said in an e-mailed note.