With the Japanese disaster and the evolving situation in Libya being well priced into most asset instruments, the market sentiment may be switching its focus for directional guidance back to the equities and currency markets. For the moment both of these market are mostly neutral for the commodity complex. However, it is looking more and more likely that both the euro and the US dollar are heading toward a period where they may begin to strengthen versus other major currency pairs as both the ECB and the US Fed's next monetary move is likely to begin to slowly raise interest rates. Currency traders are starting to anticipate these events which could result in a firming pattern for both of these currencies well before the event actually takes place. If so, it would be modestly bearish for commodities…including oil.
Late today the API released their latest inventory assessment. The API report was mixed but only modestly biased to the bullish side (gasoline in particular). The API reported a crude oil inventory build of about 5.7 million barrels even as refinery utilization rates increased by 0.7% to 83.3% of capacity. The API also reported a small decrease in crude oil imports which did little to offset the increase in refinery run rates. PADD 2 stocks surged higher by about 4.1 million barrels after the previous API report showed a small decline in stocks in that region. They also showed a strong draw in gasoline stocks of about 2.0 million barrels while distillate fuel stocks declined by only 0.1 million (so much for the colder than normal temperatures last week). The results of the API report are summarized in the following table. So far the reaction to the API report has been mildly bullish for refined products as prices and marginally bearish for crude oil. If Wednesday’s EIA report is in sync with the API report I would view it as mostly neutral.