Quote of the Day
A discovery is said to be an accident meeting a prepared mind.
The oil complex is drifting lower after a mixed API inventory report and ahead of the more widely followed EIA inventory report as participants also await U.S. Fed Chairman Bernanke’s comments before Congress today. The overall fundamentals have been improving over the last several weeks with large declines in total oil stocks in the U.S. of over 21 million barrels. Last night’s API report was mixed with a draw in crude oil (NYMEX:CLQ13) but sizeable builds in refined products. If the EIA report is in sync with the API report (often times it is not) it could suggest that the large destocking of oil stocks over the last several weeks might just be a short term trend rather than the start of a longer term destocking pattern. Today’s EIA inventory report is likely to be a modest market mover.
The newly anointed spot September Brent/WTI spread has been relatively flat over the last few days with the spread currently trading in a tight range of around $2/bbl on the low end to about $2.75/bbl on the upper, resistance level. Last night’s API report showed only a small decline in Cushing stocks after much larger declines over the two previous weeks. The API and EIA Cushing stock number has been relatively consistent for the last several months and as such today’s EIA report is likely to show a similar small decline in stocks.
The Cushing inventory snapshot is a neutral for the spread as the market was looking for a larger decline in stocks. I am still of the opinion that the spread could hit parity even earlier than the end of the year. Certainly that will require the destocking of oil in Cushing to continue as well as the oil heading to the USGC to actually not result in a new surplus just at another location.
Today U.S. Fed Chairman Bernanke starts his two day testimony before Congress. The market will be watching the proceedings and likely parsing every word he says to see if there are any new clues as to when the Fed is likely to begin to wean the U.S. economy off of the massive quantitative easing program that has been in play since the heart of the financial crisis. Over the last several weeks there have been mixed views regarding QE3 with the market leaning toward a view that suggests the Fed may not begin to shut down the program this year. Needless to say most risk asset market will be impacted by the comments today… at least for the short term.