Commodities changed little in European session. The front-month contract for WTI crude oil hovered around Wednesday's close of 87 while the equivalent Brent crude contract fluctuated around the 100 level. Supply shortage as sanctions over Iran took effect on July 1 was overshadowed by weakness in the Eurozone's economy. Investors also shrugged off the strikes in Norway which has caused suspension of 250-290K bpd of oil output. Gold price edged higher as the ECB rate cut is set to trigger inflationary pressure. Concerning other precious metals, palladium outperformed as the US car sales exceeded expectations. US auto sales soared +2.17% to a 14.1M units saar in June.


The industry-sponsored API estimated that crude inventory fell -3.03 mmb to 382.62 mmb in the week ended June 29. Gasoline stock dropped -1.40 mmb to 203.88 mmb while distillate fell -1.15 mmb to 118.32 mmb. According to market expectations, the DOE/EIA will probably report today that crude stock fell -2.30 mmb while gasoline slipped -1.40 mmb. Distillate stock might have gained +0.5 mmb during the week.

Besides BOE and ECB meetings, investors would pay attention to US data. Initial jobless claims probably dipped -1K to 385K in the week ended June 30. ISM non-manufacturing data might have fell to 53 in June from 53.7 a month ago. These indices would give insight to the June employment report due on Friday.

At the ECB today, policymakers are expected to cut the main refinancing rate by -25 bps to 0.75% and the deposit rate by -15 bps to 0.1% at the July meeting. Other than rate cuts, the ECB would probably not add unconventional measures this month. While the sovereign debt crisis in the Eurozone remained a key concern, the ECB has stated many times that it is the responsibility of national governments to solve the problem. The BOE is almost certain to raise the size of asset purchases by 50B pound 375B pound at the July meeting. Indeed, this has already been priced in the GBP. At the June meeting, members voted 5-4 to maintain the asset purchases unchanged. Those voted against additional easing would like to gauge the impact of the emerging 'Funding for Lending', i.e. the Long Term Repo Operation (LTRO), but believed that further easing would be necessary in the future. Inflation in the UK has eased significantly in recent months. Headline CPI moderated to +2.8% y/y in May from +3.0% in April and above +5.0% in late 2011. As the price pressure faded away, this removed a hurdle for policymakers to ease further.

Weekly change in inventory as of 05/07/12 ChangeConsensusPrevious
Crude oil  -2.30 mmb-0.13 mmb
Gasoline  -1.40 mmb+2.08 mmb
Distillate  +0.50 mmb-2.28 mmb

Comparison between API and EIA reports:


  API (Jul 05)   EIA (Jul 05) 
 ActualInventoryPrevious Forecast (using API's inventory level)Inventory
Crude oil-3.03 mmb382.62 mmb+0.51 mmb -4.55 mmb383 mmb
Gasoline-1.40 mmb203.88 mmb+0.37 mmb -0.94 mmb204 mmb
Distillate-1.15 mmb118.62 mmb-1.02 mmb -0.2 3mmb117 mmb