Oil focused on Europe, inventory secondary

The API data was mixed and directionally a tad out of sync with most of the projections...including my projections. The API reported a small draw in crude oil stocks versus an expectation for a build in crude oil inventories of about 0.9 million barrels as crude oil imports decreased by about 500,000 barrels per day while refinery run rates increased by 0.4%. The API reported a smaller than expected draw in gasoline stocks and a much larger than expected decline in distillate fuel inventories.

The market was expecting a small build in crude oil stocks and a modest draw in gasoline and distillate fuel inventories this week. The report is slightly bullish but it has not resulted in any major price action coming into the market since the data was released late yesterday afternoon. The market remains hostage to the outcome of the European soap opera that has been unfolding so far this week as discussed above with inventory data a secondary driver. The API reported a draw of about 0.2 million barrels of crude oil with a 0.1 million barrel draw in Cushing and a draw of about 0.2 million barrels in PADD 2 which is neutral to bearish for the Brent/WTI spread, which has been on the defensive. The bulk of the draw was in PADD 3 or the Gulf region showing a decrease of about 2.6 million barrels. On the week gasoline stocks decreased by about 1.1 million barrels while distillate fuel stocks drew by about 3.4 million barrels. The more widely watched EIA data will be released this morning. Whether or not the market will react to anything that comes out of the EIA this morning will be dependent on what revolves around Europe today.

I am not sure many market participants are going to pay much attention to this week's round of oil inventory data as Europe is now back into a state of turmoil and uncertainty suggesting that this week's oil inventory reports will not likely have a major impact on price direction. At the moment all market participants are continuing to follow the tick by tick direction of equities and the US dollar (driven by Europe)... as they are both the primary price drivers for oil once again. As such this week's oil inventory report is likely to remain a secondary price driver at best and only impact price direction if the actual EIA data is noticeably outside of the range of market expectations for the report. The more widely watched EIA data will be released later this morning.

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