Oil in holding pattern waiting on debt talks

Quote of the Day

Ability will never catch up with the demand for it.

Malcolm Forbes

I apologize for have to talk yet again about the lack of a deal in the US to solve the overspending habits that have resulted in the situation that exists at the moment. We are not winning the dueling proposal mode with both side seemingly still far apart and the President threatening to veto the House GOP bill. Not a pretty picture as the politicians seem to be primarily focused on the upcoming election in 2012 rather than coming up with a solution that is optimum for the American public...which I still view as being simple...spend less money that we do not have. All markets remain in a massive holding pattern and will likely trade in this pattern – with a downside bias – until something breaks and a deal is done. I still expect a deal to get done but not until the very last minute.

Global equity market are also feeling the impact as the EMI Global Equity Index is now negative for the week as shown in the following table below. The EMI Index has now lost 0.9% for the week widening the year to date loss to 6.3% and less than 1% above the lowest level for the year. There are now just three bourses out of the ten in the Index that are still in positive territory with one on the cusp of going negative (London). Equities are a negative for oil prices as well as the broader commodity complex.

On the oil fundamental front Tuesday afternoon's API report was mixed in my view with crude oil and distillate fuel strongly bearish while gasoline was mildly bullish. The API data was mostly outside of the market expectations showing a huge surprise build in crude oil inventories, an above expected build in distillate fuel stocks, a surprise decline in gasoline and a slightly larger than expected decline in run rates.

The API reported a crude oil inventory build of about 4.0 million barrels as refinery utilization rates declined by 0.3% to 85.8% of capacity. The API reported a draw of about 2.9 million barrels of crude oil in PADD 2 with the bulk of the build in PADD 3 as SPR oil starts to hit the market. Crude oil stocks in the mid-west are not as high as they once were and with this week's decrease they are around the level they were at back in the first quarter of this year. They showed a build in inventory for distillate fuel and a small draw in gasoline stocks. The market was expecting a small build in gasoline stocks and only a modest build in distillate fuel inventories this week. On the week gasoline stocks decreased by about 0.6 million barrels while distillate fuel stocks were higher by about 2.9 million barrels. The results of the API report are summarized in the following table. So far the market has reacted negatively to the API report...especially for crude oil... 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 modestly supportive.

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