WTI leading the market lower

The oil complex is moving lower in overnight trading on a bearish API oil inventory report released late yesterday afternoon and ahead of the more widely followed EIA report release this morning. WTI is leading the market lower after a surprise build in Cushing crude oil stocks reported in the API report with the Brent/WTI spread widening modestly in the session. As I have been discussing in the newsletter for weeks the market remains in a tug of war between the geopolitical risk in the Ukraine and Libya versus the growing surplus of crude oil building in the United States. So far today the bearish fundamentals are acting as the main short term price directional catalyst.

From a technical perspective the spot WTI (COMEX:CLM14) contract is quickly approaching a test of the psychological 100/bbl level. WTI has consistently traded above the $100/bbl level since early April. If WTI breaches and settles below the $100/bbl level the next level of technical support is around the $98/bbl level. Brent (NYMEX:SCM14) has been holding up better than WTI as the Ukrainian risk premium is still built into the Brent price.

Using the June Brent/WTI spread as an indicator I would estimate the Ukraine/Libyan risk premium at around $3.50/bbl. The June spread bottomed around the $4.50/bbl level in the first half of April. Since then the spread has widened based on unrest rising in the Ukraine and the slow return of Libyan oil to the market. The spread is still about $3.50/bbl above its level from April 11, which is what I currently estimate to be the geopolitical risk premium still embedded in the price.

Global equities improved over the last twenty four hours with the EMI Global Equity Index increasing by 0.20 percent. The year to date loss narrowed to 1.1 percent improving about 0.5 percent on the week so far. That said macroeconomic data and the outcome of the US Fed FOMC meeting hit the media airwaves today… all of which could be market movers in either direction. Six of the ten bourses in the Index are now in positive territory for the year to date with Canada still topping the list. Global equities have been a positive price directional drive this week for both the oil and commodity markets.

Wednesday's API report was biased to the bearish side as total crude oil stocks increased more than the expectations while gasoline inventories declined less than expected. Crude oil imports into the US increased by 170,000 barrels per day with refined product exports from the United States likely increasing from the Gulf region. Total inventories of crude oil and refined products combined were higher on the week.

The oil complex is trading mostly lower as of this writing and heading into the EIA oil inventory report to be released at 10:30 AM EST today. 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.

Crude oil stocks increased by 3 million barrels. On the week gasoline stocks decreased by just 49,000 barrels while distillate fuel stocks increased by 0.7 million barrels. Refinery utilization rates increased by 0.7 percent.

The API reported Cushing crude oil stocks increased by 202,000 barrels for the week. The API and EIA have been very much in sync on Cushing crude oil stocks and as such we should see a similar build in Cushing in the EIA report. Directionally it is slightly bullish for the Brent/WTI spread.

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