Oil rebounds from 5-month low as inventories decline

Quote of the Day

We can be sure that the greatest hope for maintaining equilibrium in the face of any situation rests within ourselves.

Francis J. Braceland

The selling in the oil complex continued on Tuesday with WTI (NYMEX:CLZ13) leading the complex lower. However, after surprisingly large draws in refined products in the API oil inventory report the market has turned the corner and has been trading higher since late yesterday afternoon. The market is in short covering rally ahead of today’s EIA oil inventory report. The market has been getting pummeled since most of the commodities in the oil complex breached their range support levels on Friday. The market was oversold coming into this week’s round of inventory reports and susceptible to some of the shorts heading to the sidelines… which they are in the processing of doing in overnight trading.

On the economic front, U.K. industrial production increased more than expected in September. Output increased by 0.9% from August. This is a bit of a bright spot in what looks like an ongoing dismal picture for all of the EU. The EU economy is still sluggish at best and it has been directly impacting oil consumption in Europe. The EU commission revised down it 2014 EU GDP projection to 1.1%. The latest data out of the U.K. is positive but not something that suggests all of Europe is ready for a growth spurt in oil consumption anytime soon.

Global equity markets lost value over the last 24 hours. The EMI Global Equity Index declined by 0.31% resulting in the year to date gain narrowing to 2.9%. Eight of the 10 bourses in the Index remain in positive territory for 2013 with only China and Brazil still in the loser’s column for the year. Equities have been a negative price driver for the oil complex this week as market participants await Friday’s big economic event…U.S. nonfarm payroll data. In addition the U.S. dollar seems to have put in a short term peak over the last several trading sessions and is acting as a mild support for the oil complex as well as the broader commodity markets.

The investigation into the possibility of Brent price manipulation got a bit more interesting as four former Nymex floor traders claim in a lawsuit that the prices for buying and selling crude oil are fixed according to an article in Bloomberg. The case, which follows at least six other U.S. lawsuits alleging price-fixing in the Brent market, provides what appears to be the most detailed description yet of the alleged manipulations and lays out a possible road map for investigators. Time will tell what the investigators will find and if the lawsuits will be successful.

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