Oil driven lower by European risks while waiting on inventories

Global equity market are also under pressure as money is continuing to come out of most equity markets and moving into cash...especially the US dollar. The EMI Global Equity Index (table shown below) is now lower for the week resulting in the year to date loss widening to 1.1%. Since the US close yesterday all equity markets have moved into negative territory with US equity futures pointing to a strongly lower opening in a few hours. The market sentiment has changed significantly the last two months. In the middle of March the EMI Index was in a strong uptrend with the year to date gain at 15.2%. Since then the sentiment has turned decidedly negative and the Index has lost 16.3%. This is a very negative turnaround and one that clearly shows the market is expecting even further event issues as well as a no growth economic picture.

Aside from all of the macro issues sending oil prices lower, supply and demand are more than in balance with a bias toward the oversupplied side of the equation. Demand is waning in many places around the world but in particular in China the main oil demand growth engine of the world. With Saudi Arabia and OPEC in general producing at very high levels there has not been nor is there expected to be any shortfall of supply in the foreseeable future. The overall fundamentals for oil are biased to the bearish side.

This week's oil inventory reports will be released one day late. The API data will be released this afternoon while the EIA data will hit the media airwaves at 11 AM EST on Thursday. At the moment oil prices are still being mostly driven by the direction of the euro and the US dollar as well as by a view that the global economy is continuing to slow. The tensions evolving in the  Middle East between Iran and the West have been easing as another meeting will take place in June.  As such we may not see much of a reaction from market participants to this week's round of oil inventory data as the macro risk off momentum is currently the main concern of al market players. This week's oil inventory report will likely be a background price catalyst unless the actual outcome is significantly different from the market projections.

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