Oil regains losses as gold loses safe haven status

As mentioned before, the last 24 hours have been tumultuous for the global equity markets (and all risk asset market for that matter) have started out with across the board selling only to make an abrupt halt and reverse back to the upside. In fact only two of the ten bourses in the Index are in negative territory as shown in the following table of the EMI Global Equity Index. That said US equity futures are pointing to a higher opening on Wall Street today which would erase all of the losses in both the US and Canada (if it holds). The Index is now down just 0.7% on the week but as mentioned above it is likely to be erased if the direction of the markets in the west hold up throughout the upcoming session in the US. Equities have been negative for oil prices as well as the broader commodity complex to start the week but have now moved to being a positive short term price driver for oil as well as other commodity markets.

With the financial and commodity markets still in state of turmoil and uncertainty it is not clear if this week's oil inventory reports will have a major impact on price direction. At the moment with all of the financial uncertainty permeating around the global markets it is difficult to say if and when this week's report will impact the market. The normal weekly reports get underway late this afternoon when the API data will be released at 4:30 PM EST followed by the more widely watched EIA data on Thursday morning. I also want to caution that this week's data is going to be impacted by the combination of some logistical shut downs of oil operations along the US East coast ahead of Irene along with a large amount of consumers topping off of their gasoline tanks ahead of the storm as well as the preemptive shut-downs in the oil producing region of the Gulf of Mexico ahead of TS Lee last week. The data is likely to show some surprises but be careful before jumping in based on this week's data until the market digests the information. I have based my projections on the impact from TS Lee as well as the left over impact from Irene the week before.

My projections for this week’s inventory reports are summarized in the following table. I am expecting an across the board draw in inventories and a decline in refinery utilization rates which should result in a supportive or bullish weekly fundamental snapshot. I am expecting a modest draw in crude oil stocks with a decrease in refinery utilization rates. I am expecting a modest draw in gasoline inventories and a smaller decline in distillate fuel stocks. I am expecting crude oil stocks to decline by about 2.0 million barrels. If the actual numbers are in sync with my projections the year over year deficit of crude oil will narrow to about 4.8 million barrels while the overhang versus the five year average for the same week will come in around 25.3 million barrels. My projection risk for crude oil is to the downside as stocks could have actually declined more strongly depending on the combination of how much additional oil was held offshore ahead of the storm. I am expecting to see a modest decrease in both PADD 2 and Cushing crude oil stock levels which could potentially impact the Brent/WTI spread.

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