The US dollar has been falling over the last several days and has also been providing support to the oil and commodity complex as confidence continues to build that the Greek bailout will flow. As I have been suggesting for weeks there is a high probability that the EU will be successful in kicking the Greek can down the road and as such we can expect to see a continuation of the short covering rally in the euro that began a day or so ago which in turn will pressure the US dollar. In addition ECB head Trichet signaled yesterday that the ECB is on vigilance watch meaning that there is a high likelihood that the ECB will raise short term interest rates when they meet next week further supporting the euro over the US dollar. I expect this pattern to continue in the short term thus provide support for the oil complex.
On the tropical weather front the National Weather Service has named its first tropical storm of the season. Tropical Strom Arlene is sitting in the eastern bay of Campeche. At the moment the NWS is projecting that the path of the storm will bring it to landfall in Central Mexico over the next 24 to 36 hours with no chance of it impacting the oil and Nat Gas rich portion of the US Gulf Coast. It also seems to be north of Mexico's oil operations and as such it does not look like it will impact Mexican production. That said it is simply a reminder that the tropical weather season is just getting under way with the heart of the season still in front of us.
On the oil fundamental front last night's API report was mixed and mostly neutral in my view with crude oil marginally bullish while refined products were mostly bearish. The API data was mostly within the market expectations showing an expected decline in crude oil inventories, a modest build in distillate stocks and gasoline inventories with refinery utilization rates coming in unchanged.
The API reported a crude oil inventory draw of only about 1.4 million barrels even as refinery utilization rates remained at 86.5% of capacity while imports increased only modestly. The API reported a modest decline of about 0.5 million barrels and at Cushing, Ok. Crude oil stocks in the mid-west are still high but with this week's decline they are around the level they were at back in February of this year. They showed a build 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 increased by about 0.6 million barrels while distillate fuel stocks were higher by about 1.0 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 mostly neutral.