Financial markets steadied although the S&P announced to have put long-term ratings of the EFSF on negative watch, signaling the AAA rating of the fund could be lowered by one or two notches. The move, together with the previous warning that ratings of 15 countries in the Eurozone would be put on negative watch, is expected to push EU leaders to devise more creditable measures to contain the sovereign debt crisis. Wall Street gained modestly with DJIA and S&P 500 climbing +0.43% and +0.11% respectively. In the commodity sector, Brent crude contract rebounded but continued hovering around 110 while WTI crude continued to trade above 100 despite BP's concerns about high oil prices.

Rating agency S&P stated that it might lower the long-term credit rating on EFSF by one or two notches should ratings of the guaranteed member countries are cut. S&P said that it has has placed the long-term AAA ratings on EFSF's guarantor members Austria, Finland, France, Germany, Luxembourg, and The Netherlands on negative watch, indicating the view of 'their increased credit risks'.

Instead of dumping the risky assets, the market remained steady after the news as investors believed S&P's move would accelerate the process of resolving the debt problems in the 17-nation region. Also boosted sentiment was NY Time's report that European officials are debating allowing the new 500B euro ESM in addition to the EFSF. This would increase the firepower available to support the debt-ridden countries.

As the market awaited the oil inventory report from the DOE/EIA, the industry-sponsored API reported that crude oil inventory declined -5.04 mmb to 334.13 mmb in the week ended December 2. Gasoline inventory added +0.64 mmb to 210.04 mmb while distillate stock rose +1.7 mmb to 141.17 mmb. The official report will probably show that a -1.25 mmb drop in crude inventory while gasoline and distillate stockpiles gained +0.88 mmb and +1.15 mmb respectively.

Weekly change in inventory as of 02/12/11 ActualChangeConsensusPrevious
Crude oil   -1.25 mmb+3.93 mmb
Gasoline   +0.88 mmb+0.21 mmb
Distillate   +1.15 mmb+5.53 mmb

Comparison between API and EIA reports:

       

  API (Dec 02)   EIA (Dec 02) 
 ActualInventoryPrevious Forecast (using API's inventory level)Inventory
Crude oil-5.04 mmb334.13 mmb+3.44 mmb +8.36mmb339mmb
Gasoline+0.64 mmb210.04 mmb-0.17 mmb -0.24 mmb209 mmb
Distillate+1.70 mmb141.17 mmb+1.35 mmb +6.50 mmb139 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