Oil and dollar driven by Chinese rate hike

EMI Global Equity Index

10/20/10

Change

Change

2010 YTD

2010

From

From

Change

5:42 AM

Yesterday

Yesterday %

%

US/Dow Jones

10,979

(165)

-1.48%

5.3%

Can/S&P-TSX

12,571

(97)

-0.77%

7.0%

Lon/FTSE

5,695

(9)

-0.16%

5.2%

Paris/Cac 40

3,802

(6)

-0.16%

-3.4%

Germany/Dax

6,485

(6)

-0.09%

8.9%

Japan/Nikkei

9,381

(158)

-1.66%

-11.1%

HongKong/HangSeng

23,556

(207)

-0.87%

7.7%

Aussie/SYDI

4,624

(32)

-0.69%

-5.3%

China/Shanghai A

3,148

2

0.06%

-8.4%

Brazil/Bvspa

69,864

(1,872)

-2.61%

1.9%

EMI Global Equity Index

15,010

(255)

-1.67%

2.2%

Late yesterday afternoon the API released their latest inventory assessment. The API released a relatively neutral inventory report showing a surprisingly larger than expected crude oil inventory build of about 2.3 million barrels along with a smaller than expected decline in gasoline stocks of just 0.1 million barrels while distillate fuel stocks were within the expectation for a draw of around 900,000 barrels. The results of the API report are summarized in the following table along with my projections for this week’s inventory report and a comparison to last year as well as the five-year average for the same week. So far the reaction to the API report has been muted with prices primarily trading around the moves in the U.S. dollar and global equity markets.

Projections

10/20/10

API

Current

Change from

Change from

Results

Projections

Last Year

5 Year

mmbls

vs. Proj.

vs Proj.

Crude Oil

2.3

1.0

22.5

38.6

Gasoline

(0.1)

(1.0)

10.2

16.5

Distillate

(0.9)

(0.8)

1.7

32.9

Ref Change Level

0.6%

-0.2%

0.6%

-2.0%

Utilization %

80.9%

81.7%

81.1%

83.7%

My projections for this week’s inventory report are summarized in the following table along with a comparison to last year as well as to the five-year average for the same week. I am expecting a mixed report with a modest build in crude oil (as a result of refinery utilization rates declining) and modest draws in both gasoline and distillate fuel. If the actual numbers are in sync with my projections for a crude oil build of 1 million barrels, it would raise a question mark about the early start of a destocking trend in crude oil seen over the last few weeks. However, the declines to date have not had a significant impact on the overhang that has persisted in the United States throughout the entire economic recovery. As such I would categorize this week’s crude oil inventory data as biased to the neutral side as the year-over-year surplus will still be around 22.5 million barrels while the overhang vs. the five-year average for the same week will have narrowed modestly to 38.6 million barrels.

With runs expected to decline by only 0.2% and demand waning, I am expecting only a modest draw in gasoline stocks and in distillate fuel. Gasoline stocks are expected to decline by about 1 million barrels as refiners continue to wind down from the higher demand summer driving season and turn their attention to the upcoming winter heating season. This week the gasoline year-over-year overhang is projected to hold at around 10.3 million barrels while the surplus vs. the five-year average for the same week will be down to 16.5 million barrels. The industry seems to be starting to work off the surplus that has remained since the end of the driving season in an effort to at least put a floor on gasoline prices heading into the winter heating season.

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