Energies brace for EIA inventories data

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EMI QuickView Short Term Market Overview

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Yesterday’s trading activity in the oil pits confirmed the fact that the gains seen in the oil complex over the last several days were nothing other than a short covering rally in a broader downtrend. Crude oil declined almost 4% on the day losing almost $3/bbl of its values. Oil is still more likely to trade with a $6 handle much before it starts trading with $8 handle again. Also as we have been indicating, yesterday’s move clearly fell into the category of an exaggerated move as the bearish current fundamentals certainly played a major role in sending any remaining bulls to the sidelines. There was little support coming from the financials as equities languished most of the day while the US dollar hovered near the unchanged level for most of Tuesday’s session...neither providing any support for oil prices. As such, market participants were forced to focus on the fundamentals, which not only are bearish but continue to be bearish as evidenced by the API data released late yesterday afternoon (more on inventories below).

The macroeconomic data that hit the airwaves yesterday was modestly supportive as consumer confidence came in noticeably better than expectations suggesting that the consumer may possibly begin to open their purses and begin to spend a bit more. We saw on Monday that consumer spending did increase by 0.4% albeit mostly deficit spending as personal income did not keep pace with spending. The release of the Fed minutes was as expected while home sales prices increased. This week has seen a mixture of both supportive and bearish economic data with lots more to come as the week progresses toward the major number...non-farm payrolls.

Around the globe the data has also been mixed with China’s manufacturing number (PMI) growing at a faster pace in August versus July. The PMI in China rose to 51.7 from 51.2 in July suggesting that the main economic growth engine of the world may have bottomed. An increasing PMI is a positive for oil prices as China also remains the main growth area for oil consumption, and if manufacturing is increasing oil consumption is likely to increase and possibly begin to chip away at the oversupplied situation in the oil complex. However, to add more uncertainly to the global recovery, Europe’s manufacturing activity slowed in August and export demand fell to the lowest level in about seven months. The European Index declined to 55.2 in August from 56.7 in July. Basically, the condition of the global economic recovery continues to be uneven, at best, with a high degree of uncertainty as to the pace of the recovery going forward.

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