Crude Marches on Strong Economic Data, Natural Gas Extends Slide

Edited by Vani Rao

Strong economic recovery indicators boost crude prices

Crude Oil

The WTI crude gained 2.03%, or $2.03 a barrel, during the week ended Friday, May 16, 2014. The light, sweet crude posted its highest weekly gains in the past one month after robust key US economic data and the ongoing political uncertainty in Ukraine.

Source: Bloomberg
Source: Bloomberg

On Friday, May 16, 2014, US crude oil prices improved 52 cents, or 0.51%, to end the week at $102.02 a barrel on the New York Mercantile Exchange (NYMEX). The increased tension between Ukraine and pro-Russian supporters has deepened the crisis in Ukraine, which is the gateway for Russian oil and gas to the European nations. The tension has also created fears of further US involvement in the standoff between Russia and Ukraine. Oil supplies from Russia have been badly hit during the period, increasing Europe’s dependency on the Gulf for oil supplies.

The US Department of Commerce reported on Friday, May 16, 2014, that new construction of privately owned houses in the US, or US housing starts, rose 13.2% last month, the highest in five months and a sharp improvement on the March 2014 numbers of 2.0%.

In another major economic data release, the US Department of Labor reported new jobless claims for the week ended May 9, 2014, on Friday, May 16, 2014. The government body reported that first-time jobless claims fell to 297,000, the lowest in the last six years.

However, on Thursday, NYMEX-traded crude fell by 87 cents, or 0.85%, after the Energy Information Administration (EIA) reported that crude oil inventories had increased by 947,000 barrels to a 28-year record high of 398.5 million barrels during the week ended May 9, 2014.

In the week ahead, all eyes will be on Wednesday’s release of the Federal Reserve’s latest monetary policy meeting minutes. They will provide the central bank’s insight of the economy and possible monetary policy changes. Among other major economic releases are the new jobless claims and new home sales during the week ended on Friday, May 1, 2014.

On Friday, May 16, 2014, the European standard Brent crude rose 0.61%, or 66 cents a barrel, to end the week at $109.75 a barrel. The ICE Futures Exchange trade crude gained 1.72%, or $1.86 a barrel, during the week. The spread between the Brent and WTI crude stood at $7.73 a barrel.

Source: Bloomberg
Source: Bloomberg

The WTI and Brent crude were last trading at $102.32 and $110.17 a barrel, respectively, at the time of reporting.

Natural Gas

US natural gas prices fell on Friday, May 16, 2014, to a three-week low as the demand for natural gas during the spring season was evenly poised. Natural gas prices for June delivery fell 1.25%, or 5.6 cents, to settle the week at $4.413 per million British Thermal Units (BTU).

Source: Bloomberg
Source: Bloomberg

Natural gas prices rose 2.4%, or 10.2 cent per BTU, on Thursday, May 15, as the EIA reclassified the 8 billion cubic feet of natural gas from base gas to working gas. The EIA also announced that natural gas stockpiles for the week ended May 9, 2014, improved 105 billion cubic feet, more than Bloomberg analysts’ expectations of a 99-billion-cubic-feet decline.

For the week ended May 9, 2014, the US total natural gas stockpiles stood at an 11-year low of 1.160 trillion cubic feet, 773 billion cubic feet below last year’s inventory and 9,549 billion cubic feet below the five-year average of 2.110 trillion cubic feet for the same period.

According to weather forecasting models, milder spring weather has spread its arms across the US, which has lowered the household demand for natural gas for heating purposes. With further warmer climate being predicted, natural gas prices are set to ease in the upcoming weeks. Hence, natural gas prices could witness a bearish trend going forward.

US Natural Gas was last trading at $4.430 per million BTU at the time of reporting.

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