Thus the gains in equities in the aforementioned countries suggest to me that it is the accommodative and aggressive easy money policies that are driving inventors into equity risk markets rather than a view that equities are rising on the back of a strongly growing economy. For example so far the current corporate earnings season has been highlighting the weakness in Europe for earnings and revenue misses. Of the 150 or so of the S&P 500 companies that have reported earnings, so far most companies are missing revenue expectations suggesting that the forward look on where the economy is going is toward the slowing front. Thus the upward movement in selective equity markets seems more driven by QE and low interest rates rather than robust economic growth.
Interestingly oil and equities are relatively correlated except over the last month or so we have seen oil prices not following the strong moves higher in the equity markets that are benefiting from QE type policies. In fact we have seen crude oil prices decline a tad over $10/bbl since the beginning of April mostly being driven by the perception or view that the global economy is slowing and thus oil demand growth may slow even further versus current projected levels. At the moment there is a divergence between the direction of oil prices and selective equity markets.
Tuesday's API report was slightly supportive for crude oil and gasoline and neutral for distillate fuel. For the first time in three weeks there was no major surprise or miss for crude oil but there was a surprise draw in gasoline inventories. Total crude oil stocks decreased by 0.8 million barrels versus an expectation for a modest build of about 1.5 million barrels even as crude oil imports decreased while refinery run rates decreased by 1.5 percent. The API reported a build in distillate fuel inventories that was within the expectations.
The entire oil complex is still in positive territory after yesterday’s recovery in prices and heading into the EIA oil inventory report to be released at 10:30 AM EST on Wednesday. The market is usually 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 PADD 2 stocks built by around 0.8 million barrels while Cushing stock decreased by 0.038 million barrels. On the week gasoline stocks decreased by about 2.7 million barrels while distillate fuel stocks increased by about 0.7 million barrels.
My projections for this week’s inventory report are summarized in the above table. I am expecting a modest build in crude oil inventories, a small build in distillate fuel... as the weather returned to spring like temperatures over the east coast during the report period... and a build in gasoline stocks as refinery runs are expected to also show a gain.