Commodities trading outlook: crude oil futures gain on supply disruptions, natural gas advances

Crude oil rebounded on Monday on supply contractions from two member countries but remained near five-year lows as the UAE said OPEC wont curb production to cushion the market. Natural gas advanced amid forecasts for a colder end to December.

February US crude was up 0.52% for the day at $58.38 per barrel by 12:34 GMT. Prices held in a daily range between $59.00 and $56.47, the lowest since May 2009. The contract settled 3.51% lower on Friday at $58.08.

Meanwhile on the ICE, Brent for delivery in the same month edged up 0.98% to $62.76 a barrel, having shifted in a daily range between $63.48 and $60.55, the lowest since July 2009. The European crude benchmark fell 2.88% on Friday to $62.15, settling at a premium of $4.07 to WTI. The gap widened to $4.38 on Monday.

Shipments from Libyas biggest and third-biggest crude terminals were disrupted by fighting, the state-run National Oil Corp. said, while output from some fields was halted. Meanwhile, workers at Nigerian export terminals and oil platforms began an indefinite strike over industry reforms.

According to an OPEC report dated December 10th, the two countries produced 2.57 million barrels of crude oil per day in November, while the groups collective output amounted to 30.05 million bpd, 1.73 million more than what OPEC is required to supply.

The market will balance itself out said U.A.E. Energy Minister Suhail Al-Mazrouei, adding that the Organization of the Petroleum Exporting Countries, which accounts for around 40% of the world’s oil supply, would not consider holding an emergency meeting during the next three months. Venezuela and Algeria are supporting the idea of a group gathering before the official one on June 5th, however, the countries have not requested such a meeting, said a foreign ministry official on December 12.

On its previous official meeting held on November 27 in Vienna, OPEC voted against a reduction in its 30-million-barrels-per-day production and thus did not provide any support for the already falling oil prices. The move has been seen as a counter measure against the booming shale production in the US, which is pumping at its fastest rate in more than 30 years.

Global oil demand will increase by 230 000 barrels a day in 2015, according to the International Energy Agency, down from its previous projection. Also the Paris-based agency predicted that supply outside OPEC will climb by 1.3 million per day to 57.8 million bpd. Demand for OPEC crude is expected to fall by 300 000 bpd next year to 28.9 million.

This week’s expected strong US data may provide slight support for oil prices, which have fallen around 18% since OPEC resisted calls from Venezuela and other members to reduce production and thus defended its market share.

“Expectations for this month’s PMI are favorable which should prevent a further drop for the week. Provided manufacturing PMI figures are favorable, we expect to see a slight recovery to $61.81 for WTI Feb ’15 and $63.26 for Brent Feb ’15 for this week,” said Singapore-based Phillip Futures on Monday cited by CNBC.

However, prices are expected to fall further if the market maintains its oversupplied state, which is more than likely with OPEC’s top 3 producers offering its crude at discounted prices in Asia and expectations of growth in the US shale output.

Natural gas

Natural gas extended Friday’s hefty gains as weather patterns for the end of the month continued to trend colder during the weekend, providing support after recent bearish headwinds.

On the New York Mercantile Exchange, natural gas for delivery in January rose 2.19% to $3.878 per million British thermal units by 12:34 GMT, having shifted in a daily range between $3.936, the highest since December 2nd, and $3.861 per mBtu. The energy source settled 4.4% higher at $3.795 on Friday.

According to NatGasWeather.com, US natural gas demand will be moderate compared to normal through December 20th, with a colder weather trend for the following seven days.

Temperatures across the northern and central regions of the country are expected to be seasonal through this weekend, while conditions over the southeastern US remain mild with highs in the 60s and 70s.

However, extended forecasts showed numerous weather systems will enter the central and eastern US around the Christmas Holiday, all bearing the potential to tap cold Canadian air. Although it remains unclear how much of that air will be brought over the US, it will probably become colder than usual across the east-central US.

“It will be getting colder over the Midwest and eastern US, potentially significantly so, but the weather data could be more convincing and consistent on how it plays out” NatGasWeather.com analysts said in an e-mailed note to clients.

Supplies

The Energy Information Administration reported on Thursday that US natural gas stockpiles slid by 51 billion cubic feet in the week ended December 5th, exceeding analysts’ estimates for a drop of 45 billion cubic feet but also trailing the five-year average withdrawal of 71 bcf.

Total gas held in US storage hubs stood at 3.359 trillion cubic feet which was 5.2% below last year’s 3.545 trillion and narrowed its deficit to five-year average levels to 9.5% from 9.8% during the preceding week.

Due to last week’s mild weather, EIA’s next report, due this Thursday, is expected to show a significantly smaller draw than the five-year average, which would help further trim deficits. However, the likely bearish stockpiles report might be overshadowed by bullish weather data, given the cold blasts that are projected to arrive to the northern US next week.