Oil inventory surplus continues

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EMI QuickView Short Term Market Overview

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N - Neutral Bu - Bullish Br- Bearish CBu - Cautiously Bullish

CBr - Cautiously Bearish

The Nymex October WTI contract spent its last day of trading on Tuesday in negative territory even as the U.S. dollar declined to a six week low and equities hovered near the unchanged level. In overnight trading the dollar has continued to weaken and now that the November contract is the spot month, it has reversed course and recovered some of yesterday’s losses. The oil market is back to looking for a catalyst for its next move. On the economic front the U.S. Fed signaled yesterday after their latest FOMC meeting that they would be willing to ease monetary policy further to spur growth and support prices while refraining today from expanding its holdings of securities. “The FOMC will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate”.

The Fed said the pace of recovery and job growth has slowed in recent months. The committee also said “measures of underlying inflation are currently at levels somewhat below those the committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. What this all suggests to me is the Fed is still as concerned as they were after last month’s meeting and are not yet ready to open the Quantitative Easing spigots, but they are in the ready mode. To a certain extent their statement is a bit bearish as it validates the fact that the US economy is still likely to grow only very slowly and thus it is mildly bearish for oil especially from the perspective of an economy sensitive to diesel demand.

This morning the minutes of the last UK Central Bank meeting were released and, much like the US Fed, their view was less than enthusiastic as the minutes indicated they might have to engage in additional stimulus as UK economic growth slows. If so they would be in the same mode as the US Fed of entering into yet another round of Quantitative Easing. The signals coming from just about every corner of the developed world still suggests that the economic recovery will be slow at best resulting in oil demand growth continuing too struggle to return to pre-recession levels.

The aforementioned sentiment continues to permeate throughout the financial markets as evidenced by the EMI Global Equity Index (table shown below). The Index lost about 0.5% over the last 24 hours widening the year to date loss to 1.1%. However, the Index is still showing a small gain for the week of 0.6% held up mostly by modest gains overnight in Asia. On the other hand all of the major bourses in Europe, as well as US equity futures are currently in negative territory. The best description of the financial market sentiment is still one of uncertainty and concern over the slow pace of the recovery which raises the potential for the economy to slip back into another bout of recession. For this morning the equity markets are mostly neutral for oil prices with the declining US dollar providing all of the support for oil…at least until the EIA releases their oil inventory snapshot later this morning.

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