Oil waiting on Fed after inventories show big decline

Quote of the Day

Life is like riding a bicycle. To keep your balance you must keep moving.

Albert Einstein

Markets have been relatively quiet in overnight trading as participants await the outcome of the U.S. Federal Reserve FOMC meeting as well as U.S. GDP data. The market is expecting a status quo from the Fed with little new guidance as to the phasing out of the massive quantitative easing program. The market is expecting U.S. Q2 GDP to come in around 1.1%, or a less than stellar performance for the U.S. economy. The only way the FOMC outcome could turn into a major market mover will be for the Fed to indicate an early ending to QE3. With Q2 GDP expected to be barely above the 1% level and unemployment expected to come in around 7.5% or 1% above the Fed’s threshold I do not expect any surprise ending announcements from the Fed today.

 

Even with oil prices on the defensive so far this week the spot Nymex WTI contract is heading for about a $7/bbl gain for the month of July or the largest monthly gain in more than a year. As discussed in yesterday’s newsletter from a technical perspective the market formation is one of a pattern that has peaked with the short term tend pointing lower. However, I do not think there is enough downside momentum to push prices significantly lower over the short term. The oil complex seems to be trying to form a trading range for prices to settle into until the uncertainty as to supply and demand are more clearly established.

Since the release of the API data last night WTI has found some support as Cushing stocks declined significantly for the second week in a row. Cushing stocks are back to a level not seen since early in the fourth quarter of 2012.  Even with the many issues evolving with several international crude oil producing regions including maintenance reductions in the North Sea the Brent/WTI spread has been hit with a strong round of selling overnight resulting in the spread narrowing almost a $1/bbl as of this writing. I am not sure the widening run is over just yet as I would like to see at least another day of narrowing to start to feel comfortable layering in new shorts.

Global equities are now lower for the week. The EMI Global Equity Index is down by a tad over 1% for the week to date with the yearly loss now sitting at 3.9%. Seven of the ten bourses in the Index still remain in positive territory for 2013 with bourses in countries that have very accommodative monetary policies still holding the top spots in the Index. Brazil and China remain the main laggards in the Index. This week global equities have been a negative price driver for the oil complex and broader commodity complex as participants await today’s FOMC outcome as well as the plethora of macroeconomic data due for the US.

 

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