Oil prices had a volatile day on Wednesday, initially climbing higher but gains were than erased amid a report that the Keystone XL pipeline proposal was rejected by the government. The IEA's latest forecasts indicated a fall in oil demand in 2012. The front-month contract for WTI crude oil ended the day at 100.59, down -0.12%, while the equivalent Brent crude contract plunged -0.78% to settle at 110.66. On the macro front, the World Bank lower its global growth forecast to +2.5% for 2012, down from +3.6% projected 6 months ago. The Eurozone economy will contract by -0.3%, instead of a +1.85 growth. In the US, GDP will expand +2.2% this year, down from +2.9% in previous projection.

The State Department announced that it has denied an application by TransCanada to build the Keystone XL pipeline, which would have carried crude to US Gulf Coast refineries from Alberta's oil sands. Yet, the Department would preclude the company from apply for an alternate route that avoids an environmentally sensitive area in Nebraska. The news hurt oil prices as inventories are going to increase because of this.

For more information about Keystone XL pipeline, please refer to: http://news.yahoo.com/factbox-keystone-xl-dominates-energy-environment-agenda-181747868.html

The IEA stated in its monthly report that global oil demand is expected to reach 90M bpd in 2012, up +1.1M bpd from 2011 but down -0.2M bpd from the projection last month. However, the agency said that the risks are to the downside for the global economy and oil demand growth.

While awaiting the official inventory report from the DOE/EIA, the industry-sponsored API estimated that crude oil stock fell -4.8 mmb in the week ended January 13. For fuel products, gasoline increased +4.3 mmb while distillate dropped -0.9 mmb. The market forecast that crude inventory soared +3.00 mmb while gasoline and distillate stockpiles added +2.35 mmb and +1.38 mmb respectively.

Weekly change in inventory as of 13/01/11
Change
Consensus
Previous

Crude oil
 
+3.00 mmb
+4.96 mmb

Gasoline
 
+2.35 mmb
+3.61 mmb

Distillate
 
+1.38 mmb
+3.99 mmb

Comparison between API and EIA reports:

       

 
 
API (Jan 13)
 
 
EIA (Jan 13)
 

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

Crude oil
-4.80 mmb
330.08 mmb
+0.40 mmb
 
+7.00 mmb
334mmb

Gasoline
+4.30 mmb
225.29 mmb
+1.89 mmb
 
+1.38mmb
219 mmb

Distillate
+0.90 mmb
147.15 mmb
+0.85 mmb
 
+5.05 mmb
145 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