Oil looking toppy amid economic headwinds

The negative news continues to come from China as the Premier said overnight that the labor situation will become more severe and that the weakest economic growth since 2009 will lead to increasing job losses. He went on to say that the government will implement a more proactive labor policy. He also said a few days ago that the economic rebound lacks momentum and difficulties may persist for awhile. All that sounds like more easing is coming and possibly even some form of a stimulus or spending program like the one China launched during the height of the financial crisis. Yes I still expect more easing from China in the short term but I do not expect it to have an immediate impact on the economy. Growth will remain sluggish for months to come. That said more stimulus could awaken the QE crowd again and send them back into the market from the long side as they move into a perception trading mentality.

Global equities recovered most of the losses from early in the week as shown in the EMI Global Equity Index table below. The Index is now down just 0.1% for the week with the year to date loss sitting at 0.6%. Three of the bourses remain in negative territory for the year. Over the last twenty four hours all of the markets in the west have added value with Asian trading mixed but mostly lower. Global equities remain a neutral to biased to the bearish side for oil and the broader commodity complex.

The API report showed a larger than expected decline in crude oil stocks and a surprisingly large build in distillate stocks along with a surprise draw in gasoline stocks. The API reported a draw (of about 2 million barrels) in crude oil stocks and greater than the expectation range even as crude oil imports increased while refinery run rates decreased strongly by 1.5%. The API reported a strong build in distillate stocks. They also reported a surprise draw in gasoline stocks versus an expectation for a more seasonal build in gasoline inventories.

The report is bearish for distillate, bullish for crude oil and gasoline. The market has not reacted much in overnight trading and has been drifting lower for all commodities in the complex ahead of the EIA oil inventory report at 10:30 AM today.  The market is always cautious on trading on the API report and prefers to wait for the more widely watched EIA report due out this morning at 10:30 AM. The API reported a draw of about 2.0 million barrels of crude oil with a build of 0.7 million barrels in PADD 2 but a decline of 0.451 million barrels in Cushing, Ok which is neutral to bearish for the Brent/WTI spread. On the week gasoline stocks decreased by about 0.1 million barrels while distillate fuel stocks increased by about 3.4 million barrels. 

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