Commodities trading outlook: Brent rises second day on China data, natural gas extends rally on weather

November 10, 2014 3:35 pm

Brent crude rose for a second day following better-than-expected trade data from China, as well as supply disruptions in Libya and escalating tensions in eastern Ukraine. Natural gas reached a 4-1/2-month high as forecasts warned about sub-freezing temperatures in the north-central US and colder-than-normal weather across the majority of the country. A stronger dollar pared the oil market’s daily gains.

December US crude fell by 0.15% to $78.53 per barrel by 15:10 GMT, having shifted in a daily range between $79.75, the highest since November 3rd, and $78.33. The contract added 0.95% on Friday to $78.65, closing the week around 2.4% lower.

Meanwhile on the ICE, Brent for delivery in the same month gained 0.37% to $83.70 per barrel. Prices ranged between a one-week high of $84.97 and $83.18. The European benchmark crude gained 0.64% on Friday to $83.39, marking a seventh consecutive weekly decline – the longest losing streak since 2001. Brent was at a premium of $5.17 to its US counterpart, up from Friday’s close at $4.74.

Data by China’s National Bureau of Statistics showed on Saturday that Chinese exports surged by 11.6% on an annual basis in October, exceeding analysts’ projections for a 10.6% increase. This was the seventh straight month of exports growth and the fourth month of above-expected values.

Meanwhile, imports rose at the annualized pace of 4.6% last month, trailing economists’ forecasts of 5.5%. In September, inbound shipments expanded 7%, offsetting the previous two months’ combined contraction of 4%. China’s trade surplus widened for a third month and reached $45.41 billion, beating expectations for $42.00 billion. Crude imports rose to 24.1 million tons in October.

However, downbeat inflation data on Monday sounded a bearish tone. China’s statistics agency reported that consumer prices were flat on a monthly basis in October, compared to projections for a 0.1% growth, and ending three months of increases. Year-on-year, the CPI index confirmed projections and was unchanged at 1.6%, the lowest in almost five years.

Producer inflation also came in worse than expected, falling by the most since March. The Producer Price Index slid by an annualized 2.2%, underperforming projections for a deflation of -2.0%.

Supply disruptions

Supply disruptions in Libya, holder of Africa’s biggest crude oil reserves, also helped prices to gain ground. Exports at eastern Libya’s Hariga oil port were halted on Saturday due to a strike by security guards over unpaid salaries.

Meanwhile, the El Sharara and Elephant fields in southwestern Libya are expected to restart today, said on Sunday Mohamed Elharari, spokesman for the state-run National Oil Corp. The Elephant field was shut down yesterday due to a power outage, while output at the former was halted due to political violence.

Bloomberg also reported that the Es Sider and Mellitah ports were closed last week due to bad weather.

Escalating tensions in Ukraine added some geopolitical risk to the market. Ukrainian forces shelled the city of Donetsk yesterday, putting a fragile ceasefire on the line. Andrei Purgin, deputy premier of the self-proclaimed Donetsk People’s Republic, attended a meeting on Monday in the Federation Council, Russia’s upper house of parliament, discussing eastern Ukraine. Meanwhile, Ukraine said Russia was intensifying its efforts to support rebels with weapons and supplies.

Natural gas

Natural gas extended the largest weekly gain since February amid forecasts calling for cold weather across most of the US.

On the New York Mercantile Exchange, natural gas for delivery in December gained 0.32% to $4.426 per million British thermal units by 15:10 GMT. Prices ranged between $4.391 and $4.544, the highest since end-June. The contract edged up 0.18% on Friday to $4.412 per mBtu, marking a one-week increase of almost 14%, the biggest gain since February.

According to NatGasWeather.com, natural gas demand in the US over the next seven days will be high, compared to normal, with a colder weather trend for the November 17-23 time span.

Early this week a strong arctic blast will flow into the north-central U.S., bringing sub-freezing temperatures and pushing into northern Texas amid weather systems moving out of the Plains and into the Midwest.

Snowfalls are expected to form along the cold front and the slopes of the Rockies. During the next several nights temperatures will fall to single digit numbers and may even drop below the zero line within the core of the arctic blast affecting the northern Plains and Rockies.

Most of the eastern U.S. will enjoy mild weather before the cold front arrives Wednesday into Thursday. With the exception of the southwestern US, colder temperatures will reign over the rest of the country by the end of the week, NatGasWeather.com reported.

Early next week cold Canadian air will sweep across the northern U.S. accompanied by snowfall and much-colder-than-normal temperatures. The southern U.S. will also be affected by temperatures lower than usual, as cold blasts push deeper into the U.S.

The Southwest and California will enjoy above-seasonal readings, making them the only two regions which will not be within the cold weather’s grasp.

Supplies

The EIA reported on 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. This was the 29th straight above-average weekly build.

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 an early estimate of 30-40 Bcf.

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