Despite pullbacks earlier in the day, financial markets strengthened again in the US session as driven by encouraging corporate earnings results. Moreover, sentiment was again lifted by news that France and Germany have agreed to expand a rescue fund. Wall Street reversed losses made in the morning session with DJIA and S&P 500 gaining +1.58% and +2.04% respectively. Shares in Asian session were also boosted. In the commodity sector, WTI crude oil for December delivery, dipping to 85.55 initially, climbed to a 1-month high of 89.23 before ending the day at 88.53, up +2.20%, while the equivalent Brent crude contract initially slipped to a 3-day low of 108.45 but then rebounded and settled at 111.15, up +0.90%. Gold met strong selling pressure after failing to re-test 1700 on Monday. The benchmark Comex contract plunged to a 2-week low of 1628.2 before recovering to 1652.8, down -1.42%, at close.

Market sentiment was easily reversed after some US companies reported stronger than expect earnings results. Intel Corp's revenue and net income soared +295 and +17% respectively in 3Q11. The company also boosted its stock buyback program by $10B and made a strong revenue forecast for the all-important holiday in 4Q11. Yet, the company was not free of concerns as CEO Stacy Smith described European markets as 'subdued' and the US market as 'OK' only. Bank of America reverted to profit of $5.89B in 3Q11 but was drive by accounting gains. While the results boosted other banking shares, the core business remained weak. The US' second largest bank has unveiled plans to cut 30K jobs over the next few years.

Investors were also thrilled by a report that France and Germany had agreed to boost a rescue fund to 2 trillion euro as part of a 'comprehensive plan' to resolve the sovereign debt crisis in the Eurozone. Guardian, a British newspaper, stated that European leaders speed up the discussion after Moody's warned that France's credit rating is threatened. The newspaper cited EU diplomats' comments that the rescue plan contained 2 parts. First, the main bailout fund, the EFSF, will be 'given additional levers enabling it to offer first-loss guarantees for bondholders, be they private or public. Senior diplomats say this will deliver a fivefold increase in the fund's firepower - giving it more than 2 trillion euro compared with the current 440B euro lending capability. The EFSF will in effect become an insurer, thereby overcoming European Central Bank resistance to the idea of turning into a bank'. Second, France and Germany have agreed that Europe's banks should be recapitalized to meet the 9% capital ratio that the European Banking Authority is demanding after its re-examination of the exposure levels of 60 to 70 'systemic' banks. The EBA has marked these exposures much closer to current market values.

Turning to some oil-specific news, as the market awaited the official inventory report from the DOE/EIA, the industry-sponsored API reported a -3.13 mmb decline in crude inventory in the week ended October 14. Gasoline stock also dipped -1.61 mmb while distillate stock slipped -2.2 mmb.

Weekly change in inventory as of 14/10/11 ChangeConsensusPrevious
Crude oil  +2.00 mmb+1.34 mmb
Gasoline  -1.50 mmb-4.13 mmb
Distillate  -1.50 mmb-2.93 mmb

Comparison between API and EIA reports:

       

  API (Oct 14)   EIA (Oct 14) 
 ActualInventoryPrevious Forecast (using API's inventory level)Inventory
Crude oil-3.13 mmb337.29 mmb-3.81 mmb -0.33 mmb340 mmb
Gasoline-1.64 mmb209.57 mmb-1.19 mmb -0.03mmb211 mmb
Distillate-2.20 mmb149.70 mmb-3.12 mmb -4.31 mmb152 mmb

       

API collects stockpile information on a voluntary basis from operators of refineries. Data from the API and DOE have moved in the same direction 71% of the time over the past 52 weeks

Source: Bloomberg, API, EIA