Crude oil prices rebounded yesterday but gains were pared as the FOMC meeting turned out to be a non-event. The front-month contract for WTI crude oil initially jumped to a 3-day high of 101.25 before settling at 100.14, up +2.42%, while the equivalent Brent crude contract soared to as high as 111.1 before ending the day at 109.5, up +2.09%. Gold remained weak with the benchmark Comex contract plunging to 1625.5, the lowest level since October 21, before bouncing back to 1663.1 at close. Stock markets also got hit with DJIA losing -0.55% and S&P 500 dropping -0.87% yesterday.

The Fed decided to leave the policy rate and operation twist unchanged. This is expected as recent economic data in the US improved but sovereign debt problems in the Eurozone remained a great uncertainty. Policymakers would prefer to stand on the sideline and monitor the developments for the time being. In the accompanying statement, the Fed changed to a mildly more positive tone, stating that the economy has been 'expanding moderately', compared with the reference that the economy have 'strengthened somewhat' used last time. The labour market was also described as having shown 'some improvement' compared to 'continuing weakness' previously. Policymakers, however, retained the language stating that economic conditions 'are likely to warrant exceptionally low levels of the federal funds rate at least through mid?2013'. The decision to leave the policy unchanged was not unanimous. Chicago Fed President Charles Evans voted against the decision to stay on hold for the second consecutive meeting as he favored 'additional policy accommodation at this time'.

In the Eurozone, uncertainty remained despite the EU summit last Friday. New reports stated that German Chancellor Merkel had reiterated her opposition to raising the ESM lending limit beyond 500B euro. In Greece, the budget deficit widened 5.1% y/y to 20.5B euro in the first 11 months of 2012 as economic recession due to austerity measures outweighed extras revenue brought about by new taxes. A government official of the debt-ridden country said that 'If current spending and revenue trends continue, the deficit will be at about 10% of GDP and not at about 9%'. The only more positive news about the 17-nation region was that the Bundesbank indicated that it was prepared to provide a maximum of 45B euro to the IMF under the condition that this be used by the Fund's 'General Resources Account' under regular IMF rules and that other EU states contribute in line with their IMF quota.

The US Energy Department will report its weekly inventory today. After the market close yesterday, the industry-sponsored API estimated that crude inventory added +0.46 mmb to 334.6 mmb in the week ended December 9. Gasoline dipped -0.01 mmb to 210.0 mmb while distillate rose +1.24 mmb to 142.4 mmb during the week.

Weekly change in inventory as of 09/12/11 ActualChangeConsensusPrevious
Crude oil  -2.50 mmb-1.25 mmb+1.34 mmb
Gasoline  +1.20 mmb+0.88 mmb+5.15 mmb
Distillate  +1.00 mmb+1.15 mmb+2.53 mmb

Comparison between API and EIA reports:

       

  API (Dec 09)   EIA (Dec 09) 
 ActualInventoryPrevious Forecast (using API's inventory level)Inventory
Crude oil+0.46 mmb334.59 mmb-5.04 mmb -1.49mmb335mmb
Gasoline-0.01 mmb210.03 mmb+0.64 mmb 4.97 mmb210 mmb
Distillate+1.24 mmb142.41 mmb+1.70 mmb +1.39 mmb142 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