Oil drops on Fed minutes and surprise inventory build

Expected range of $102-$107

Global equity markets resumed their corrective downtrend after the release of the Fed minutes as shown in the EMI Global Equity Index table below. The EMI Index lost almost 1% over the last 24 hours narrowing the year to date gains to 11.1% while pushing this week's activity back into negative territory for the week. The Index is now back to the level it was at back in early February. The downside correction is now around 4%. Absent a new round of QE by the US market participants are going to focus solely on the evolving economic picture for the individual global markets...many of which are moving in slow motion. We could see further downside moves in the global equity markets unless the macroeconomic data starts to show that the recovery is picking up steam. For the moment the global equity market are also a negative for oil prices as well as the broader commodity complex.

Chart 2

The API report showed a much larger than expected build in crude oil stocks, a surprisingly large draw in gasoline stocks along with a surprise decline in distillate fuel inventories. The API reported a strong build (of about 7.8 million barrels) in crude oil stocks versus an expectation for a modest build in crude oil inventories as crude oil imports increased even as refinery run rates also increased by 0.2%. The API reported a large draw in gasoline stocks and a surprise draw in distillate stocks versus an expectation for a more seasonal build in inventories.

The report is bearish for crude oil but neutral to bullish for refined products. The market has drifted lower since the report has been issued but on relatively low volume. The market is always cautious on trading on the API report and prefers to wait for the more widely watched EIA report due out tomorrow. The API reported a build of about 7.8 million barrels of crude oil with a build of 1 million barrels in PADD 2 which is bullish for the Brent/WTI spread. On the week gasoline stocks declined by about 4.5 million barrels while distillate fuel stocks decreased by about 1.4 million barrels. 

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