Oil spread widens as Midwest glut far from dissipating

With the oil complex moving very much in sync with the equity sector any further downside corrections in equities will quickly spread to the oil complex. The market sentiment is similar to what it was at the end of the first quarter of 2009 when market participants started to discount the nearby conditions and focus on what the economy would be like down the road if it remains in a growth pattern. As in 2009 the so called perception trade drove values and it is once again driving most risk asset values at the moment. From time to time the current fundamentals have an impact but the main driver is the perception that the global economy will be more robust down the road.

Global equities were relatively flat over the last 24 hours as shown in the EMI Global Equity Index table below. The Index is still down by about 1% for the week with the year to date gain currently at 1.6%. The Japanese bourse is surging and is now a showing double digit gain for the year as the Yen continues to depreciate in anticipation of further monetary accommodation. A falling Yen is very supportive for this export driven economy. China is a close second as most of the economic data that has been released over the last month or so have been suggesting that the main economic and oil demand growth engine of the world may now be growing at a faster pace than last year.

Yesterday's API report was mixed with a larger than expected build in crude oil, a build in gasoline within the expectations and a surprise draw in distillate fuel. Total crude oil stocks increased by 3.6 million barrels versus an expectation for a more modest build. Gasoline showed a build in inventory while distillate fuel stocks decreased versus an expectation for a small build. The API reported a 3.6 million barrel build in crude oil stocks versus an industry expectation for a modest build of around 2.5 million barrels as crude oil imports decreased but offset a tad by a modest increase in refinery run rates by 0.2%. The API reported a modest draw in distillate and a build in gasoline stocks.