Global oil demand growth lowered for third month in a row

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Yesterday was a relatively flat day for most risk asset markets as the majority of Monday's strong gains held in oil and equities. The big news coming out of Europe on Tuesday was the rejection of the expansion of the ESFS bailout fund by Slovakia, the second poorest nation in the 17 nation EU bloc and the only country to reject the expansion. However, the current view is the legislature will eventually approve the bailout proposal. As such the momentum moved toward a bit more optimism that the European leadership is inching closer to a longer lasting solution to its debt problems. The market is also viewing the bank recapitalization proposals as starting to gain momentum. So far most risk asset markets are continuing where they left off on Monday with gains in commodities & equities and a decline in the US dollar as the euro is strengthening once again.

With Europe seemingly progressing and with the macroeconomic data so far this week a tad better than expected... including Eurozone industrial output released this morning... equity markets are holding firm and oil prices (basis WTI) just passed another resistance plateau of $85/bbl. In spite of both the IEA and OPEC (see below for more details) lowering their forecast for oil demand growth the market is still holding onto modest gains.

On the equity front the EMI Global Equity Index has gained ground again as shown in the following table. Over the last 24 hours the Index gained almost 1% and is now higher by 2.8% on the week. The year to date loss is still below the bear market threshold showing a loss of 17.3%. The US Dow not only remains the best of the worst but it is now within 1.4% of moving back into positive territory for 2011. About two weeks ago the US market was bordering on double digit losses for the year. The market sentiment has started to change or at least it is considerably less negative than it was just a few weeks ago. The ability to continue to improve in value will be a direct function as to how the EU debt solution evolves over the next several weeks. For the moment global equities are a positive for oil prices as well as the broader commodity complex.

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