The oil complex remains in a tug of war between the economic and growth headwinds that have been plaguing oil and the risk asset markets for an extended period of time. On the other hand the headwinds from the evolving geopolitical situation in the middle east as well as the exposure of increasing inflation risk from all of the money printing going on around the world are what is driving the upside perception view in the oil complex. Both side of this battle have impacted oil prices in their respective directions over the last month or so with the headwind price drivers taking a slightly dominant role this week. I do expect oil to remain in this tug of war for the foreseeable future with price movements in both directions and thus the development of the trading range that has been starting to form over the last week or so.
Global equity markets declined strongly over the last 24 hours as shown in the EMI Global Equity Index table below. After starting the week in positive territory the Index is now lower by 1.4% for the week resulting in the year to date gain narrowing to 7.6%. There are now only three bourses showing double digit gains for the year as China is still the only bourse in negative territory for the year. Over the last 24 hours the economic growth headwinds dominated global equity trading.
The API report was outside of the range of expectations. The crude oil build was lower than expected as was the gasoline build while distillate fuel showed an inventory draw versus an expectation for a small build. The API reported a build (of about 0.3 million barrels) in crude oil stocks versus an industry expectation for a larger build as crude oil imports decreased strongly while refinery run rates also decreased modestly by 0.9%. The API reported a surprise draw in distillate stocks. They also reported a smaller than expected build in gasoline stocks.
The report is mixed and mostly biased to the neutral side for everything other than distillate which is marginally bullish. The market is mostly lower heading into the US trading session and 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. The API reported a build of about 0.3 million barrels of crude oil with Cushing, Ok about unchanged while PADD 2 stocks increased by 0.5 million barrel which is bullish for the Brent/WTI spread. On the week gasoline stocks increased by about 0.1 million barrels while distillate fuel stocks decreased by about 0.5 million barrels.