Oil focuses on inventories while waiting for Isaac to pass

Global equity markets were mostly unchanged over the last 24 hours as shown in the EMI Global Equity Index table below. The Index is still down by about 0.2% on the week with the year to date gain hovering around 4.8%. Not much has changed with Germany still holding onto the top spot by a mile with China the only bourse in negative territory for the year. Global equities are mostly a neutral for oil and the broader commodity complex in the short-term as market participants await some key economic data as well as the outcome of Bernanke's speech.

The API report showed a surprisingly large build in crude oil stocks and distillate fuel stocks and a draw in gasoline. The API reported a build (of about 5.5 million barrels) in crude oil stocks versus an expectation for a modest draw as crude oil imports increased significantly while refinery run rates also decreased modestly by 1.2%. The API reported a seasonal build in distillate stocks. They also reported a larger than expected draw in gasoline stocks versus an expectation for a smaller draw in gasoline inventories.

The report is mixed but mostly bearish. The market is lower across the board in overnight trading and ahead of the EIA oil inventory report at 10:30 AM on Tuesday.  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 build of about 5.5 million barrels of crude oil with a draw of 0.377 million barrels in Cushing, Ok and a draw of 0.399 million barrel draw in PADD 2 which is bearish for the Brent/WTI spread. On the week gasoline stocks decreased by about 2.4 million barrels while distillate fuel stocks increased by about 1.4 million barrels. 

I do not expect this week's inventory report to be impacted from the preemptive shut-ins related to Isaac as the report period ended on Friday when the cuts were just getting underway. Next's week inventory report will be impacted and reflective of the lost production of both crude oil and refined products. This week's oil inventory report could likely be a primary price catalyst especially if the actual outcome is significantly different from the market projections as the market is primarily focused on short term oil fundamentals because of the topical storm in the Gulf of Mexico.

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