With the geopolitical situation in the Middle East quieter than it was over the last several weeks it has moved from being the main oil price driver to a secondary one. The global economy and oil fundamentals have now moved back into the forefront. As mentioned above the main issue that traders and investors are looking at regarding the faltering global economy is whether or not the US politicians will be able to strike a deal to prevent the fiscal cliff by the end of the year. For the moment this driver is biased to the negative side.
On the fundamental front the first batch of data released last night... the API inventory report was anything but bullish (see below for more details). US inventories are still well above both last year and the five year average or simply put oil is well supplied globally with no shortage of oil any place in the world. Oil fundamentals are also biased to the bearish side.
The API report was bearish on all fronts and in directional sync with the range of expectations. Crude oil showed a larger than expected build. In addition both gasoline and distillate stocks showed modest builds in inventory versus an expectation for a smaller build in gasoline stocks and a build in distillate fuel inventories within the range of expectations. The API reported a build (of about 2 million barrels) in crude oil stocks versus an industry expectation for a build as crude oil imports decreased marginally while refinery run rates increased strongly by 1.4%. The API reported a modest in distillate and gasoline stocks.