Commodities trading outlook: Brent rebounds on OPEC diplomacy, natural gas heads for weekly loss

Both West Texas Intermediate and Brent crudes rose on Friday amid speculations that OPEC members have stepped up diplomacy to address the recent price rout. Natural gas rose, but was headed toward its biggest weekly decline since end-February as weather forecasts pointed toward moderating weather during the last 10 days of November.

December US crude rose by 0.57% to $74.63 per barrel by 13:46 GMT, having earlier fallen to $73.25, the lowest since September 2010. Prices slid 3.85% on Thursday to $74.21 a barrel, also the lowest since September 2010. Prices are down 5.2% so far this week, poised for a seventh straight weekly drop, the longest such streak since March 1986.

Meanwhile on the ICE, Brent for delivery in January surged 1.83% to $78.91 a barrel. Prices fell to $76.76 earlier in the day, the weakest level since September 2010. The contract plunged 4.47% on Thursday to $77.49 a barrel and is down little 5.9% on weekly basis, set for an eighth consecutive weekly decline which would be the longest losing stretch since 1988.

The oil market rebounded on Friday, albeit remaining not far off from four-year lows as OPEC producers stepped up their diplomatic activity before a scheduled meeting in Vienna on November 27th, giving market players a base for speculations over a possible supply cut. However, previous signals by leading OPEC producers showing their unwillingness to pump less oil kept gains in check.

Angola’s Deputy Oil Minister Anibal Octavio da Silva said on Tuesday that the Organization of the Petroleum Exporting Countries is undecided on a production cut, while Kuwait Oil Minister Ali Al-Omair said in Abu Dhabi on November 10th that the group won’t trim its collective crude production target at the upcoming meeting.

Meanwhile, Saudi Arabia’s oil minister Ali Al-Naimi remained silent about a possible production cut and said on Wednesday that the kingdom is committed to a stable market and a price war within the group “has no basis in reality”.

US supplies

Record high US crude output at a time of slumping global prices exacerbated already widespread fears of a price war between OPEC and US shale oil producers. The US pumped 9.063 million barrels per day in the week through November 7th, 91 000 bpd more than during the previous week.

Limited support was drawn as the Energy Information Administration reported yesterday that US crude oil stockpiles unexpectedly fell by 1.7 million barrels to 378.5 million last week, defying analysts’ projections for a 1.1-million build. However, supplies at Cushing, Oklahoma, the biggest US storage hub and delivery point for NYMEX-traded contracts, rose by 1.7 million barrels to 22.5 million, the highest since May 16th.

Total motor gasoline inventories rose by 1.8 million barrels to 203.6 million, exceeding forecasts for a 0.35-million gain, while distillate fuel stockpiles, which include diesel and heating oil, dropped 2.8 million barrels, outperforming a projected 1.5-million decline.

A strong dollar, however, continued to weigh on the market. The US dollar index stood 0.57% higher at 88.255 at 13:54 GMT, having earlier risen to 88.365, the highest since June 2010.

A stronger greenback makes dollar-denominated commodities more expensive for holders of foreign currencies and limits their appeal as an alternative investment.

Natural gas

Natural gas headed for a sizable weekly loss after scoring the biggest daily decline since end-February on Thursday as weather forecasts called for the return of near-normal temperatures across most of the US late next week.

Natural gas for delivery in December traded at $4.006 per million British thermal units at 13:46 GMT, having shifted in a daily range between $4.024 and a two-week low of $3.956. The energy source slid 4.97% on Thursday to $3.977 and is down almost 9.5% this week, which would be the biggest weekly drop in nine months.

According to NatGasWeather.com, cold weather across the US will keep national natural gas demand over the next seven days at high and very high levels, compared to normal, but the weather trend for the November 21-27 span will shift to slightly warmer.

The entire US, apart from the southwestern areas, remain covered by much colder than usual readings, reaching 18-30 degrees Fahrenheit below usual. Overnight lows over the northern Plains and Rockies are expected to remain in the single digits and below the zero mark over the next few days, while the Midwest and interior Northeast will see readings in the 20s.

As the current Arctic blast tracks out of the eastern US, a new cold blast will enter the northern US early next week, carrying fresh below-freezing temperatures and having a greater impact on the Midwest and Northeast compared to the current system.

Despite the cold short-term outlook, natural gas plummeted as extended forecasts projected a warm-up in the last ten days of November. Late next week, a Pacific jet steam will enter the western US, NatGasWeather.com reported, paving the way for milder weather systems to infiltrate the northern US, while the remaining portions of the country will also enjoy near-normal readings.

Supplies

The Energy Information Administration reported last Thursday that US natural gas stockpiles rose by 91 billion cubic feet in the week through October 31st, exceeding analysts’ projections for a jump of 85-87 bcf. Total gas held in US storage stood at 3.571 trillion cubic feet, narrowing its deficit to the five-year average of 3.832 trillion by 1.4% to 6.8% from a week earlier. Gas stockpiles were 6.2% below year-ago levels.

This week’s build is expected to probably be the last for the year that would provide a gain on deficits, with analysts projecting a build of around 36 billion cubic feet. Inventories rose by 22 billion cubic feet during the comparable period a year earlier, while the five-year average gain is 16 bcf. Official data is due today at 15:30 GMT.