Financial markets waxed and waned Wednesday amid mixed economic data and downgrades of credit ratings of European peripherals. Disappointing German IP data was offset by encouraging US non-farm productivity and unit labor costs. In the Eurozone, sovereign debt crisis remains the utmost concern. DBRS' cut of Spain's and Italy's credit ratings, as well as S&P's decision to put Greece's CCC/C foreign and local currency credit ratings on negative outlook further signaled the severeness of the problem. Wall Street fluctuated between gains and losses but ended the day modestly higher with the DJIA and the S&P 500 adding +0.05% and +0.06% respectively. In the commodity sector, crude oil retreated after several days of gains. The front-month contract for WTI crude oil slipped -0.34% to settle at 93.35 after initially rising to a 3-month high of 94.72 while the equivalent Brent crude contract closed largely flat after rising over the past 5 days.

S&P announced that it has placed Greece's outlook to negative and might cut the country's credit rating as "delays in implementing budgetary consolidation measures and a worsening Greek economy". The agency stated that the debt-ridden country's economy is likely to contract 10-11% in 2012 and 2013 while the debt would probably rise to over 170% of GDP by the end of 2013. Meanwhile, DBRS, a Toronto-based ratings agency, downgraded the credit ratings of Italy and Spain 1 and 2 notches, respectively, due to "persistent stress in market-funding conditions and rising systemic risks".

Sovereign debt problems in European peripheries have obvious impacts on the cores. For instance, economic developments in Germany have shown signs of weakness. While the drop of factory orders signaled Germany's exports were badly hurt by the economic weakness in its European trading partners, industry production also slipped -0.9% m/m in June, following a +1.7% gain a month ago. While the disappointing Germany data was upstaged by better-than-expected non-farm productivity and unit labor cost in the US, the situation in the 17-naiton bloc remains worrisome.

According to the DOE/EIA weekly report, total crude oil and petroleum products stocks slipped -1.04 mmb to 1105.36 mmb in the week ended August 3. Crude stockpile decreased -3.73 mmb to 369.86 mmb as stockpiles dropped 3 out of 5 PADDs. Cushing stock slipped -0.80 mmb to 44.30 mmb. Utilization rate climbed +0.4% to 92.6%.

Gasoline inventory slipped -1.80 mmb to 206.07 mmb as demand gained +0.22% to 8.84M bpd. Production rose +3.04% to 9.25M bpd while imports contracted -28.37% to 0.46M bpd. Distillate inventory fell -0.72 mmb to 123.54 mmb as demand soared +1.17% to 3.79M bpd. Imports climbed +14.52% to 0.07M bpd while production gained +1.53% to 4.70M bpd during the week.

Weekly change in inventory as of 03/08/12 ActualChangeConsensusPrevious
Crude oil 369.86 mmb-3.73 mmb-0.30 mmb-6.52 mmb
Gasoline 206.07 mmb-1.80 mmb-2.00 mmb-2.12 mmb
Distillate 123.54 mmb-0.72 mmb+1.00 mmb-0.97 mmb

Comparison between API and EIA reports:

       

  API Aug 3)   EIA (Aug 3) 
 ActualInventoryPrevious Forecast (using API's inventory level)Inventory
Crude oil-5.35 mmb364.31 mmb-11.6 mmb -9.28 mmb364 mmb
Gasoline+0.42 mmb207.66 mmb-1.34 mmb -0.21 mmb208 mmb
Distillate+2.37 mmb124.93 mmb-1.37 mmb +0.66 mmb125 mmb

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