Commodities trading outlook: oil rises on US confidence, Europe strength; natural gas inches up

Both West Texas Intermediate and Brent crude benchmarks rose on Tuesday, buoyed by a weaker dollar and a rally in European equities following upbeat results by a number of blue-chip companies. Allegedly bearish supply data by the EIA and a price forecast cut by Goldman Sachs limited gains. Natural gas held close to an 11-month low on mild weather outlook.

On the New York Mercantile Exchange, WTI crude for settlement in December rose 0.33% to $81.27 per barrel by 15:06 GMT, having shifted in a daily range of $81.66-$80.36 a barrel. The contract lost 1 cent on Monday and settled at $81.00.

Meanwhile, Brent for delivery in the same month stood at $85.90 on the ICE, up 0.08%. Prices shifted between $86.38 and $85.08 during the day. The European crude benchmark fell 0.35% on Monday to $85.83. Brent’s premium to its US counterpart narrowed/widened to $4.78 from Monday’s close at $4.83.

Consumer confidence in the US surged to the highest in seven years as the labor market continued to improve and gasoline prices slid. The Conference Board reported that its consumer sentiment index raced to 94.5, the highest since October 2007, defying analysts’ projections for a drop to 87.0. September’s reading received an upward revision to 89.0 from initially estimated at 86.0.

The oil market, and particularly Brent, also drew support as a rally in European equities, based on better-than-expected results from a number of blue-chip companies, hinted to a possible oil demand recovery in the region.

A weaker dollar also benefited the oil market. The greenback fell after US durable goods orders unexpectedly fell in October, while a separate report showed house prices in 20 US cities rose less than expected both on monthly and annual basis.

Supply data

Gains, however, were checked by a supposedly bearish supply report by the EIA, due to be released on Wednesday. US crude oil inventories probably rose by 3.8 million barrels to 381.5 million, the highest in almost four months, while gasoline and distillate fuel supplies probably shrank, by 700 000 and 1.45 million barrels, respectively.

Domestic crude oil production was at 8.934 million barrels per day in the week ended October 17th, close to the preceding week’s 8.951 million bpd, which was the highest since June 1985.

Goldman forecast

Bearish sentiment was reinforced after Goldman Sachs said on Sunday that rising output from producers outside the Organization of the Petroleum Exporting Countries, including Azerbaijan and Brazil, will result in oversupply next year.

The investment bank slashed its WTI price forecast for the first quarter of 2015 by $15 to $75 per barrel, while also trimming its prediction for Brent by the same amount to $85. Goldman expects WTI to drop to as much as $70 in the three months through June 2015 and its European counterpart to touch $80 as the oversupply is projected to be most pronounced then.

OPEC members, which supply around 40% of the world’s oil, will convene in Vienna on November 27th to discuss the group’s production policy and decide on a possible cut in production. However, OPEC’s biggest producers, including Saudi Arabia, have signaled their reluctance to cut output and instead reduced prices to buyers.

Natural gas

Natural gas rose on Tuesday but remained not far off Monday’s freshly hit 11-month low as weather forecasts for the first ten days of November called for mild weather across the central and southern US, limiting national heating demand.

On the New York Mercantile Exchange, natural gas for delivery in November traded at $3.580 per million British thermal units at 15:09 GMT, up 0.53% on the day. Prices varied in a daily range of $3.597-$3.541. The power-plant fuel slid 1.7% on Monday to $3.561, having earlier touched a fresh 11-month low of $3.547.

According to NatGasWeather.com, natural gas demand over the next seven days will rise from low to moderate, compared to normal, while keeping a neutral weather trend between November 4th and November 10th.

The southern and eastern parts of the US will enjoy above-normal temperatures today, with highs reaching the 70s and 80s, inducing light late season cooling demand.

However, cooler conditions will set up as a weather system crossing from the Northern Rockies into the Midwest brings showers and colder-than-usual readings on Wednesday and Thursday. An even more impressive Canadian weather system will track on Friday across the Great Lakes and Northeast, introducing the first widespread below freezing temperatures and light snowfall. Below-average temperatures will also push into the Southeast, sending overnight lows into the upper 30s.

A brief warm-up is expected for the Midwest and Northeast early next week, before another cold system hits the region, keeping readings slightly below normal. Pacific weather systems will keep conditions over the Northwest also cooler.

However, the bullish factors end here as the rest of the US is expected to remain dominated by seasonal, and in some areas warmer-than-seasonal weather. Readings over the central and southern US, including Texas, will be higher-than-average over the next two weeks, limiting national heating demand. Although the natural gas market will draw some support from the cold Canadian system which is set to hit the Midwest and Northeast at the end of this week, overall bearish sentiment will still limit gains.

Supplies

The EIA is expected to report the 28th consecutive above-average weekly build this Thursday, given last week’s mostly seasonal and above-seasonal readings across the US. Natural gas inventories are expected to have risen by around 90 billion cubic feet in the seven days through October 24th, which would narrow the five-year average deficit by another 20+ bcf.