What to expect from Crude Oil and Natural Gas

Currently, oil futures prices are trading near $85/bbl with gain of more than 0.80 percent as crude oil inventory declined for the first time in more than last two months of time. As per American petroleum institute, crude oil inventory has been declined by more than 1700K barrels; this is the first time fall in last 11 weeks of time. Petroleum stocks have increased as refiners have increased their capacity to meet the upcoming summer demand in US. Likewise, as per US Energy department, crude oil stocks are also likely to fall, which may again support oil prices. Actual DOE data will be releasing later today. From, economic front ECB interest rate declaration is there where expectation of providing liquidity is there to support the debt ridden countries. European leaders may go for third LTRO but may keep the interest unchanged at 1 percent ahead of Greece Election on Jun17.

Most of the Economic data releases from both Euro-zone and German are expected to benegative, which may weigh on euro and ultimately limit the gain in oil prices. US unit labor cost and nonfarm productivity may result negative for the economy which may further weigh on oil prices. Currently, most of the Asian equities are trading on higher side on optimism from Euro-zone economy and higher Australian GDP reported today early morning. We may expect oil prices to continue the positive trend during today’s session, though gain may be limited during European session. Investors must be cautious ahead of inventory report due later today, which may change the price direction.

Currently, gas futures prices are trading almost flat at $2.446/mmbtu. Natural gas futures prices as International Energy Agency (IEA) said US is expected to cross Russia by increasing its gas production by 2017.Thus, gas prices may take some positive cues on expectation of rising demand  in future.  Currently, the storage level is at 2815BCF, positioned storage volumes 732 Bcf above year-ago levels. In the coming week, also the injection level is likely to increase but in  a slower pace by 60 BCF, which may add some points on higher side today. On the other side, as per National Hurricane Centre, weather condition is expected to remain hot, which may pull demand from residential sector. Speculators have been talking up the market again, be mindful of market manipulation by traders.

The eco calendar is thin, but a rise in the USD on news flows from the eurozone, could have an effect on US dollar denominated commodities.

Watch these events closely:

Spain remained in the news, with budget minister Cristóbal Montoro spooking markets with some of his comments. He said Spain “does not have the door to the markets open” and also said that a bailout of Spain would be “impossible”. What he meant by this latter comment is that as Spain does not require a bailout, bailing it out is an impossibility (the sequel to his ‘impossibility’ comment was “Spain cannot be rescued in the technical sense of the term… Spain does not need that”). Whether Montoro is correct or incorrect, the press did not interpret his comments in the fashion that he intended.

The ECB will make a rate announcement tomorrow, and Scotia’s European economics team thinks that the ECB is likely to cut its benchmark interest rate by 25bps, from 1.00% to 0.75%. Scotia’s ECB call is based on the view that growth has slowed down and inflation is low enough not to impede a looser monetary policy. The traditional econometric evidence suggests that a 10% fall in the euro nominal effective exchange rate can boost EMU GDP growth by around 1.4% over a two year horizon (over the past year, the euro nominal effective exchange rate is indeed down by close to 10%).

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