Policy stances dominated financial markets yesterday. In the US, the Fed pledged to maintain low interest rates for an extended period while QE measures will continue as it announced in November. In China, the government accelerated measures to curb property prices. The State Council said in a statement on the website that 'China will continue to effectively curb investment and speculative purchases of houses to consolidate and expand on previous measures'. In New Zealand, the RBNZ left the OCR unchanged at 3% and delivered a statement with an upbeat tone. Investors were buoyed by the Fed's easing stance and commodity prices were generally higher. After plunging to an 8-month low of 86.03, the front-month contract for crude oil rebounded and settled at 87.33, up +1.32%. Gold initially jumped to as high as 1346.4 after slumping to a 3-month low of 1321.9 on Wednesday. Gains were, however, pared as bourses strengthened.

The Fed left the policy rate unchanged at 0-0.25% and maintained the asset-buying program at $600B. There was no one voting against the stance as Kansas City Fed President Thomas Hoenig is not a voting member this year. Despite improved economic outlook since the December meeting, policymakers avoided showing optimism in the outlook In the meeting statement but retained the view that accommodative measures are needed to ensure inflation and employment to meet the dual-mandate. Fed's persistence with QE, together with stronger-than-expected new home sale growth, sent oil prices higher. New home sales jumped +17.5% to 329K in December from a downwardly revised 280K in the prior month.

The above-mentioned events upstaged another week of surge in oil inventories. Total crude oil and petroleum products stocks rose for a 3rd consecutive week, by +2.40 mmb to 1069.4 mmb in the week ended January 21. Crude oil inventory jumped +4.84 mmb to 340.6 mmb. This was the second consecutive weekly increase in crude inventory. Increases in stockpiles were seen in all PAD districts except for the West Coast. Gulf Coast continued to see huge stock builds (up +5.90 mmb) during the week. Utilization rate dropped -1.2% to 81.8%, the lowest level since late October last year.

Gasoline inventory gained +2.40 mmb to 230.1 mmb. Gasoline demand slipped for a 4th consecutive week, by -1.63% to 8.63M bpd. Both production (-0.59%) and imports (-10.80%) dropped. Distillate stockpile dipped .0.14 mmb to 165.66 mmb although demand added +2.74% to 3.71M bpd. Imports gained +5.39% to 0.25M bpd while production slipped -1.88% to 4.27M bpd.

The macro environment will continue to dominate commodity prices today. Concerning dataflow, the US durable goods orders probably grew +1.5% m/m in December. Intial jobless claims probably rose +6K to 410K in the week ended January 22.

Weekly change in inventory as of 21/01/10 ActualChangeConsensusPrevious
Crude oil 340.57 mmb+4.84 mmb+1.20 mmb+2.62 mmb
Gasoline 230.07 mmb+2.40 mmb+2.30 mmb+4.44 mmb
Distillate 165.66 mmb-0.14 mmb-0.50 mmb+1.04mmb

Comparison between API and EIA reports:

API (Jan 21) EIA (Jan 21)
ActualInventoryPreviousForecast (using API's inventory level)Inventory
Crude oil+2.12 mmb342.77 mmb+3.53 mmb

+2.20 mmb

343 mmb
Gasoline+1.2 mmb232.61 mmb+1.87 mmb+2.54 mmb233 mmb
Distillate-5.02 mmb162.42 mmb+0.94 mmb-3.24 mmb162 mmb

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

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