Market sentiment waxed and waned, rising as the German Constitutional Court (GCC) approved the ESM and the fiscal pact but then dipping as the focus has shifted to the FOMC meeting. Wall Street ended the day modestly higher with the DJIA and the S&P gaining +0.07% and +0.21% respectively. In the commodity sector, the 2 crude oil benchmarks deviated in performance. While the front-month contract for WTI crude oil initially climbed to a 1-month high of 98.06 but then retreated to 97.01, down -0.16%, at close. The Brent crude contract climbed to a 1-month high of 116.67 before ending that day at 115.96, up +0.49%.

The German Constitutional Court (GCC) rejected the complaints against the ESM and the fiscal pact, saying the claims were largely unfounded. The German parliament is thus allowed to pass the ESM under a several conditions. First, Germany's liability must not exceed 190B euro without the approval of the lower house of parliament. Second, the German parliament must be informed about ESM decisions. As soon as the ruling of the GCC was announced, Chancellor Merkel welcomed the decision, stating that it's "a good day for Germany and a good day for Europe". Jean-Claude Juncker, the President of the Eurogroup, declared a start date of October 8 for the ESM.

Another key event is the FOMC meeting. Disappointments in the August employment report due last Friday intensified speculations that the Fed would announce QE3 in as soon as the upcoming meeting. The FOMC is expected to make a number of adjustments in its monetary stance, economic assessment and statement language in the September meeting. We expect that the Fed would push backward the earliest data of the first rate hike, deliver a more dovish tone in the statement and lower economic projections. We tend to expect announcement of QE3 at this meeting. Otherwise, the Chairman should likely state that further quantitative easing would be implemented soon.

Concerning the US oil inventory, total crude oil and petroleum products stocks gained +3.36 mmb to 1095.13 mmb in the week ended September 7. Crude stockpile increased +1.99 mmb to 359.09 mmb as stockpiles rose in all 5 PADDs. Cushing stock, however, dropped-0.83 mmb to 44.09 mmb. Utilization rate declined -1.4% at 84.7%.

Gasoline inventory slipped -1.18 mmb to 197.72 mmb as demand fell -5.25% to 8.70M bpd. Production dropped -3.50% to 8.95M bpd while imports dipped -17.12% to 0.80M bpd. Distillate inventory rose +1.48 mmb to 128.55 mmb although demand climbed +1.49% to 3.27M bpd. Imports added +6.67% to 0.14M bpd while production rose +2.49% to 4.45M bpd during the week.

Weekly change in inventory as of 07/09/12 ActualChangeConsensusPrevious
Crude oil 359.09 mmb+1.99 mmb-2.60 mmb-7.43 mmb
Gasoline 197.72 mmb-1.18 mmb-1.60 mmb-2.33 mmb
Distillate 128.55 mmb+1.48 mmb-0.20 mmb+0.99 mmb

Comparison between API and EIA reports:

       

  API (Sep 7)   EIA (Sep 7) 
 ActualInventoryPrevious Forecast (using API's inventory level)Inventory
Crude oil-0.29 mmb359.02 mmb-7.21 mmb +1.92 mmb359 mmb
Gasoline-4.16 mmb197.68 mmb-2.28 mmb -1.21 mmb198mmb
Distillate+2.55 mmb128.91mmb-0.13 mmb +1.83 mmb129 mmb

""

""

""

""