Over the last month or so the vast majority of the macroeconomic data that has been released suggests that the global economy is continuing to slow including the high flyers like China and other emerging market countries. The developed world economies are truly mixed with most of Europe in recession while the U.S. economy is growing, but at a below normal rate for this phase of the recovery period. With oil supply remaining robust and with demand growth faltering there is likely to be a continuation of an imbalance biased to the supply side for the short to medium term and thus a cap on oil prices going forward.
The June Brent/WTI spread has continued to narrow and came within $0.15/bbl on an intraday basis on Tuesday of testing the next major technical support level of $8.25/bbl. Cushing inventories may be transitioning with the API reporting a 1.4 million barrel decline in Cushing stocks along with an almost 2 million barrels draw in PADD 2 crude oil inventories. The Cushing data point has been mostly in sync between the API and EIA data over the last month or so and as such it is likely we may see a similar draw in Cushing stocks when the EIA data is released later this morning.
The spread remains in a downtrend with resistance back around the $10/bbl level. With robust production coming from the North Sea and no major interruptions in global oil supplies the Brent/WTI spread is being pressured negatively from the Brent side of the equation. This coupled with what is now looking like Cushing stocks possibly resuming the destocking pattern they were in prior to the Pegasus pipeline shut down suggests that lower levels may be possible in the short to medium term. I remain bearish the spread with $8.25/bbl support and $10/bbl resistance.
Global equity markets have continued to add value this week as shown in the EMI Global Equity Index table below. The Index is now higher by 1.7% for the week pushing the year to date gain to 1.2%. Only two bourses remain in negative territory for 2013 with Japan still maintaining the top spot in the Index with the U.S. Dow a distant second place. Brazil continues to hold the bottom spot in the Index. Overall global equities have been a positive price driver for the oil complex but over the last two sessions the bearish fundamental outlook for oil has overridden the support coming from equity markets.