Energies brace for EIA inventories data

EMI Global Equity Index

9/1/10

Change

Change

2010 YTD

2010

From

From

Change

7:15 AM

Yesterday

Yesterday %

%

US/Dow Jones

10,015

5

0.05%

-4.0%

Can/S&P-TSX

11,914

18

0.15%

1.4%

Lon/FTSE

5,303

78

1.49%

-2.0%

Paris/Cac 40

3,550

60

1.72%

-9.8%

Germany/Dax

5,987

62

1.05%

0.5%

Japan/Nikkei

8,927

103

1.17%

-15.4%

HongKong/HangSeng

20,624

87

0.42%

-5.7%

Aussie/SYDI

4,496

92

2.09%

-7.9%

China/Shanghai A

2,748

(16)

-0.58%

-20.1%

Brazil/Bvspa

65,145

885

1.38%

-5.0%

EMI Global Equity Index

13,871

137

1.00%

-5.5%

This uncertainly has been reflected in the global equity markets which remain in negative territory for the year to date as shown in the EMI Global Equity Index table below. However, the Index narrowed its year to date loss to 5.5% while the week to date is currently lower by just 0.2%. After the US markets held their own on Tuesday, the Asian markets staged a decent short covering rally on the back of the positive manufacturing data coming out of China (see above). In spite of the underperformance of the manufacturing sector in Europe in August the equity market rally has continued into Europe and at the moment has spread to equity futures markets in the US suggesting a stronger opening on Wall Street this morning. With money moving back into equities, the US dollar is on the defensive so far this morning. For the moment, both equities and the weaker US dollar are supportive for oil prices even though oil fundamentals are not likely to see much of an improvement when the EIA releases their latest inventory snapshot later this morning.

Today the EIA will release their latest snapshot of oil stocks. Late yesterday afternoon the API released yet another surprise set of numbers as summarized in the following table along with my projections and a comparison to last year and the five year average for the same week assuming the EIA data is in sync with the projections. As usual I must caution to not get too excited about the API data which was very bearish for crude oil but bullish for both gasoline and distillate fuel. As I have discussed many times in this newsletter the API data should be used for nothing other than just another projection for the EIA data and not a set a numbers that anyone should invest any trading capital in.

Projections

9/1/10

API

Current

Change from

Change from

Results

Projections

Last Year

5 Year

mmbls

vs. Proj.

vs Proj.

Crude Oil

4.8

1.2

16.1

33.7

Gasoline

(0.6)

0.2

20.7

27.5

Distillate

(1.9)

1.0

13.4

35.4

Ref Change Level

-0.2%

0.1%

0.6%

-3.9%

Utilization %

84.8%

87.8%

87.2%

91.7%

That said, the API reported a huge build of 4.8 million barrels of crude oil stocks even though they reported a big decrease in crude oil imports and a reduction in refinery utilization rates of 0.2%...basically an illogical outcome (once again). A decrease in imports results in less supply while a reduction in refinery runs results in less demand for crude (but run rates were only marginally lower) and thus the API data should not have shown such a large build in stocks. On the other side of the barrel, the API data was a bit more logical since both gasoline and distillate fuel stocks declined on the week as refinery utilization rates declined. Likely implied demand increased and coupled with loss of production from a decline in utilization rates contributed to the surprise decline in refined products inventories. We will have to watch the EIA data closely, especially insofar as demand is concerned. With the US economy in the slow and grow mode, all eyes will be focused on how the slowing is impacting oil demand.

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