Buoyed by strong US stock markets, crude oil rallied to a 1-month high despite unexpected surge in oil inventory. The front-month contract for WTI crude oil jumped +2.42% and settled at 76.94 Tuesday while that for Brent crude gained +1.82% and closed at 77.62. In the Wall Street, DJIA and S&P 500 added +2.1% and +2.3% respectively.

Market optimism was boosted by strong response in the latest Spanish debt issuance, with the government raising 5.3B euro of 12- and 18-month treasury bills. Despite elevated borrowing costs, the bid-to-cover ratios, 1.49 times for the 12-month bills and 3.51 times for the 18-month bills, indicate the upcoming 10- and 30-year auctions due on Thursday will be successful. While labor unions in Spain have planned for a general strike on September 29, analysts anticipate the movement will not be able to give pressure on the government. Elsewhere, recent auctions in Ireland and Portugal have been well-received.

Strength in the euro also lent support to oil prices. Settling at 1.2327, the single currency rose for a 6th against the dollar as risk appetite increased and traders viewed the currency as oversold.

US data was mixed yesterday but the overall tone remained solid. The Empire State manufacturing index rose to 19.6 (consensus: 19.95) in June from 19.11 a month ago. Modest improvement was also seen in 'new orders' index. The NAHB housing market index was sharply weaker, losing -5 points to 17, in June, evidencing the expiry of tax credits at end of April was the reason of strength in recent months.

After market close, the industry-sponsored API reported crude oil inventory increased +0.58 mmb to 358.8 mmb in the week ended June 11. What's more disappointing was that Cushing stock soared +0.107 mmb. Concerning oil products, both gasoline and distillate stockpiles rose during the week.

Gold price rose inline with the energy complex with the benchmark Comex futures soared +0.81% to 1234.4. Other precious metals also gained grounds with palladium, the best performer, jumping +2.80% to 475.55 while each of silver and platinum adding almost +1%.

Weekly change in inventory as of 11/06/10
Change
Market Expectation
Previous

Crude oil
 
-1.75 mmb
-1.83 mmb

Gasoline
 
+0.63 mmb
+/- 0 mmb

Distillate
 
+1.00 mmb
+1.84 mmb

Comparison between API and EIA reports:

     

 
 
API (Jun 11)
 
 
EIA (Jun 11 )
 

 
Actual
Inventory
Previous
 
Forecast (using API's inventory level)
Inventory

Crude oil
+0.58 mmb
358.8 mmb
-4.54 mmb
 
-3.42 mmb
359 mmb

Gasoline
+1.30 mmb
220.3 mmb
+1.48 mmb
 
+3.02 mmb
222 mmb

Distillate
+2.10 mmb
153.6 mmb
+3.00 mmb
 
-0.82 mmb
154 mmb

     

API collects stockpile information on a voluntary basis from operators of refineries, 76% of the time, using data in the past 4 years.

Source: Bloomberg, API, EIA