Macro issues driving oil, fundamentals take backseat

The API data was mixed and not in sync with most of the projections...including my projections. The API reported a huge draw in crude oil stocks versus an expectation for a modest build in crude oil inventories of about 5.6 million barrels as crude oil imports decreased marginally while refinery run rates also decreased by 0.5%. The API reported a much larger than expected build in gasoline stocks and a decline in distillate fuel inventories within the expectations.

The market was expecting a small build in crude oil stocks and a modest build in gasoline inventories this week. The report is slightly bullish for crude oil but neutral to bearish for refined products. That said the report 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 evolving situation in Europe that has been unfolding once again this week as discussed above with inventory data a secondary driver. The API reported a draw of about 5.6 million barrels of crude oil with a 0.8 million barrel build in Cushing and a build of about 1.2 million barrels in PADD 2 which is neutral to bullish for the Brent/WTI spread which has been widening of late. On the week gasoline stocks increased by about 5.4 million barrels while distillate fuel stocks drew by about 0.9 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.

Once again I am not sure many market participants are going to pay much attention to this week's round of oil inventory data as Europe and the US are still in the midst of uncertainty suggesting that this week's oil inventory reports may not 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. Even with the fundamentals and geopolitics starting to impact price it is the macro trade that dominates at the moment. As such this week's oil inventory report could 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.

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