Further overhanging the oil complex today is the anticipated outcome of the US Federal Reserve FOMC meeting at 2:15 PM EST followed by Chairman Bernanke's second press conference. The market is expecting status quo with no mention of a new round of quantitative easing after QE2 expires at the end of this month. The market is already anticipating that Bernanke will discuss the slowing of the US economy and that unto itself is likely to cast a dark shadow on today's trading...especially if the market is convinced that there is not much of a short term solution to the problem. Again a negative for oil prices supporting the underperformance on the demand side.
On the equity front global equity markets did gain ground over the last 24 hours but the momentum is starting to turn in the opposite direction in European markets as shown in the EMI Global Equity Index table below. The Index is currently higher by 1% on the week resulting in a narrowing of the year to date loss to 6.2%. Seven of the ten bourses in the Index remain in negative territory for 2011 with US Dow still in the lead while Brazil's market continues to solidly hold the bottom spot with the largest year to date loss. The equity markets have been mostly a positive for oil prices this week as values have gained ground. But like most every other risk asset class this market segment has moved higher mostly on short covering and not based on any positive structural change in the market. In fact as of this writing most European bourses are trading lower while equity futures markets in the US are all pointing to a lower opening on Wall Street this morning.
On the oil fundamental front last night's API report was mixed and biased to the bearish side for crude oil while being marginally positive for refined products. The API showed a much smaller than expected decline in crude oil inventories, a modest draw in distillate stocks and gasoline inventories but a surprisingly large increase in refinery utilization rates...indicating more refined products are on the way. Distillate fuel inventories resumed their decline (after a one week build) indicating that the market may not yet be ready to return to a more normal building season for HO / diesel fuel.
The API reported a crude oil inventory draw of only about 81,000 barrels even as refinery utilization rates increased strongly by 2.0% to 86.5% of capacity while imports increased only modestly. The API reported a large build in crude oil stocks in PADD 2 of about 1.7 million barrels and a 0.7 million barrel build at Cushing, Ok. Crude oil stocks in the mid-west are still high but even with this week's build they are still around the level they were at back in February of this year. They showed a draw in inventory for distillate fuel and gasoline stocks. The market was expecting a modest build in gasoline stocks and a modest build in distillate fuel inventories this week. On the week gasoline stocks decreased by about 1.5 million barrels while distillate fuel stocks were lower by about 0.5 million barrels. The results of the API report are summarized in the following table. So far the market is not reacting much to the API report as the industry awaits the EIA report later this morning. If today’s EIA report is in sync with the API report I would view it as mildly bearish especially for crude oil and it could result in some additional selling coming into the market.