Oil prices appear to be heading for a weekly gain with WTI up about $1/bbl on the week while Brent is higher by about $3/bbl with the Brent/WTI spread still trading about $2/bbl higher than where it was at the end of last week. The oil complex is mostly lower so far in early morning trading with the exception of gasoil in Europe which is being driven by the bitter cold weather engulfing a major portion of Europe. The macro indicators are in the price driver's seat so far today with the euro in negative territory and the US Dollar Index about 0.2% higher on the day...both bearish indicators for the oil complex. In addition equity markets in Europe are in negative territory while US equity futures are pointing to a lower opening on Wall Street also negative indicators for oil markets.

The negative macros are being driven by the fact that there is still no final Greek deal. The EU is holding firm insisting that there will be no financial aid until Greece clearly implements an austerity plan. The Greek Parliament is set to vote over the weekend on the latest austerity program. The market is moving back to a view that a Greek deal is not a slam dunk anymore as many were starting to believe last week and even until earlier this week. I still think there is a decent chance that a deal gets done...possibly sometime next week...assuming the Greek Parliament votes in favor of more austerity.

However, I can also see where a vote for more austerity in Greece is a difficult vote with the country in a mess and absolutely no growth coming from the economy for the foreseeable future. For example over half of the population of 15 to 24 year olds are unemployed. More austerity is not going to solve this growing problem nor is it going to result in economic growth anytime soon. So no a Greek deal is not a slam dunk and there is still a possibility that Greece does in fact default and is escorted out of the Euro zone. Stay tuned as this issue will continue to impact the global risk asset markets once gain as Europe is clearly back in the foreground.

All eyes still also remain focused on China insofar as whether or not the government will be able to orchestrate a soft landing and get the worlds main growth engine running on all cylinders once again. As I mentioned yesterday the latest increase in inflation may set back the government for a period of time in getting into a very aggressive monetary easing policy and thus postponing the time when the Chinese economy will see accelerated growth. Today China reported a decline in both exports and imports for January...the first decline in about two years. Much like the surprise inflation data it is not clear as to whether the data is the start of a new trend or simply an impact from the week long Lunar New Year celebrations. Domestic demand was weak in January while exports have been in gradual decline as a result of the slowing developed world economies...in particular Europe. With the disappointing January data so far it is almost certain that the Chinese government will drag their feet a bit before embarking on an aggressive easing policy...with special concern over the latest rising inflation data.

Geopolitics are still playing a role in the overall pricing of oil markets but for the last few days it has been playing a secondary role as all of the macro drivers have moved back into the forefront as discussed above. The sanctions are starting to hit Iran as some of the news media were reporting that Iran is actually entering into barter deals for the acquisition of some of its grains in trading oil for grains. In addition countries like India that are not abiding by the west's embargo are paying for oil with gold as the banking system is getting squeezed by the sanctions. So Iran appears to be getting a bit squeezed on the surface. Whether or not this will motivate Iran to enter into positive negotiations and ultimately end their apparent quest of nuclear weapons is a huge unknown. The evolving situation with Iran is still acting as a price floor as a minimum but each time the rhetoric or war of words increases this price driver moves more to the forefront.

The global equity markets currently look like they may be heading to end the week with the sixth weekly gain in a row as shown in the EMI Global Equity Index table below. That said right now the Index is only up by 0.2% for the week with the year to date gain at 11.3%. At the moment European equities are lower and US equity futures are currently pointing to a lower opening this morning. It this pattern continues it is possible that the EMI Index could break its upward streak and end the week with a loss. As I have mentioned on several occasions the global equity markets are very overbought and remain susceptible to a round of profit taking selling. Even if the EMI Index ends in positive territory for the week the upside movements are losing momentum and may be signaling that a downside correction is getting closer. For the moment global equities have been a bullish indicator for oil prices although that is not the case today. The International Energy Agency released their monthly oil market report this morning. Much like the EIA and OPEC they lowered their oil demand growth forecast for 2012. The IEA forecast is lower by 300,000 bpd versus their January forecast. Following are the main highlights of this morning's report.

An uneasy balance characterised oil markets in January, with tensions surrounding Iran counteracting a weaker economic outlook. The onset of winter weather pushed prices for Brent to six-month highs in early February. Brent was last trading at $117.50/bbl. By contrast, rising stocks at the Cushing storage depot pressured WTI prices lower in early February, to $99.50/bbl.

Global oil demand is forecast to climb to 89.9 mb/d in 2012, a gain of 0.8 mb/d (or 0.9%) on the year. Growth has been curtailed by 0.3 mb/d versus January's OMR, as the economic growth rate that underpins the global oil demand outlook has been reduced to 3.3% from 4.0% previously.

Non-OPEC supply fell by 0.2 mb/d to 53.2 mb/d in January, on lower global biofuels output, an escalation of conflict in Syria and between Sudan and South Sudan, and continuing outages in the North Sea. North American light tight oil production and NGLs, as well as increasing production in Latin America, offset declines elsewhere, supporting an expected 0.9 mb/d rebound in non-OPEC supply in 2012.

OPEC crude oil supply in January rose to 30.9 mb/d, the highest level since October 2008, on a steady ramp-up in Libyan production and sustained output from Saudi Arabia and the UAE. The 'call on OPEC crude and stock change' is cut by 100 kb/d for 2012, to 29.9 mb/d. OPEC's 'effective' spare capacity is largely unchanged, at 2.82 mb/d.

Global refinery crude throughput estimates for 1Q12 are largely unchanged from last month's report, as slightly higher OECD runs are offset by a weaker outlook for Latin America, following further capacity rationalisation. At 74.9 mb/d, global 1Q12 runs are forecast 220 kb/d above year-ago levels and unchanged from the previous quarter.

December OECD industry oil stocks declined by 40.8 mb to 2 611 mb, and remained below the five-year average for a sixth consecutive month. Forward demand cover fell by 0.7 days to 57.2 days, but remains 1.6 days above the five-year average. January preliminary data show a shallower-than-normal 11.4 mb build in OECD industry stocks.

WTI is still trading above its intermediate support level even with the downside correction overnight. Brent has also breached its resistance level with a path that could possibly take it to the $118/bbl level. But as with WTI Brent is also in the midst of a modest downward correction pattern. I am keeping my view at cautiously bullish but raising the caution flag that the market is becoming more susceptible to a modest round of profit taking selling in the short term...which seems to be underway as of this writing. I am still keeping my view at neutral and bias at bearish as once again there is not much supportive indications that Nat Gas is likely to embark on a major short covering rally anytime soon. The surplus is still building in inventory versus both last year and the five year average is going to get harder and harder to work off even it gets cold over a major portion of the US and as such for the medium to longer term I am still very skeptical as to whether NG will be able to muster a sustained upside rally over and above a short covering rally.

Yet another bearish inventory report which came in below the consensus and significantly below last year and the five year average. However, the market reacted negatively to the data for only a short time and actually ended yesterday's trading session in positive territory as more and more participants are starting to expect the producers to aggressively begin to cut production. I also suspect a very bearish expectation was building in the market for most of the week and thus the reaction so far is rather mild considering the magnitude of the surplus that is growing in inventory. The fundamentals remain bearish, the technicals are bearish with a triangular consolidation pattern forming that is likely to breakout in the direction of the trend which is lower and the weather is still relatively mild across major portions of the US and projected to remain mild through most of the rest of February. Needless to say I remain bearish and will remain bearish until there is evidence that the growing surplus will slow down from either cold winter weather (not likely) and/or much deeper cuts in production than what has been announced so far.

Currently markets are mostly lower as shown in the following table.

Best regards, Dominick A. Chirichella dchirichella@mailaec.com Follow my intraday comments on Twitter @dacenergy.