Oil falls after bearish EIA inventory report

On a broader basis Brent has been trading in a wide trading range also since last October. However, due to the geopolitical risk surrounding Iran and Nigeria (of late) Brent is still carrying a modest risk premium over WTI and since the beginning of the year Brent has held above its intermediate range support and over the last several days it has been able to slowly gain value and result in a widening of the Brent/WTI spread. Certainly the fact that inventories in both PADD 2 and Cushing, Ok increased by about 1.5 million barrels last week also contributed to the strengthening of the Brent/WTI spread.

On the macro or external front the economic data that has hit the media airwaves on a global basis this week has been neutral to marginally positive with the potentially big market moving US nonfarm payroll data due out tomorrow morning. The market is expecting a gain of about 175,000 new jobs with the headline unemployment rate expected to hold steady. The market could be disappointed as yesterday's ADP private sector job number came in below the expectations. How the economic data evolves over the next several weeks will be how the market projects whether or not the US Fed will eventually embark on another around of quantitative easing. If the economic data is suggesting that the economy is slowing down again it will quickly price in a higher likelihood of another QE. That pricing in of more QE could result in pushing oil and other commodity prices higher in expectation of an increase in inflation.

On the equity front global equities have continued in the uptrend that that they have been in for most of the year (so far) as shown in the EMI Global Equity Index table below. The EMI Index has gained 1.7% for the week widening the year to date gain to 10.1%. Two-thirds of last year's loss has now been recovered. Brazil has moved into the top spot as the number one gainer for the year while Hong Kong and Germany fill out the rest of the top three list. The main losers for last year have switched to be the main gainers for this year so far. The equity markets are signaling that the global economy may be entering a soft landing period with even suggesting that Europe could possibly moving to the background as evidenced by the way the three European bourses in the Index are trading... especially Germany.

Yesterday's EIA inventory report was bearish across the board as it showed a modest build in total stocks, a larger than expected build in crude oil and gasoline stocks and a smaller than expected draw in distillate fuel as implied demand declined strongly across the board even as refinery utilization rates decreased on the week to 81.8% of capacity a decrease of 0.4% in refinery run rates. The data is summarized in the following table along with a comparison to last year and the five year average for the same week.

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