Concerns over the sovereign debt crisis of the Eurozone reemerged and the focus was on Spain yesterday. Ahead of the announcement of the 2013 Budget, numerous protests were seen on streets in Spain while the Bank of Spain stated that data showed that Spanish GDP would continue to fall at a “significant rate” in the third quarter. The Ministers of Finance of Germany, Netherlands and Finland released a statement after discussion of the basic principles for enabling direct bank recapitalisations by the ESM bailout fund. The details may raise the challenges of Spain which will likely request for a bailout soon due to surge in yields. Commodities fell across the board. The front-month contract for WTI crude oil fell for a third consecutive day to a 8-week low of 88.95 before ending the day at 89.98, down -1.52%, while the Brent crude contract lost -0.37% during the day. The Comex gold contract plunged on profit-taking, falling to a 2-week low of 1738.3 before recovering to 1753.6, down -0.72%, at close.

Financial markets weakened as the Bank of Spain warned that the country’s economy had continued to contract at a "significant rate" in 3Q12. Besides recession and high unemployment rate, protests were seen everywhere in the debt-ridden country. Demonstrators and workers opposed the new austerity measures. These have made more challenging the government’s effort to cut budget deficit to 6.3% of GDP this year, down from nearly 9% of GDP in 2011. Meanwhile, the government remained reluctant to seek financial assistance from the EU. Prime Minister Rajoy stated that “at the moment I cannot tell you” whether he would seek help from the official sectors but he assured that he would definitely ”ask for this bailout” if interest rates on Spain’s debt were “too high for too long”.

At a statement released yesterday, the Ministers of Finance of Germany, Netherlands and Finland released a statement agreed that the ESM would only deal with future banking problems, rather than those happened in the past, the 4 basic principles listed in the statement are: 1) direct recapitalisation decisions need to be taken by a regular decision of the ESM to be accompanied with a MoU; 2) the ESM can take direct responsibility of problems that occur under the new supervision, but legacy assets should be under the responsibility of national authorities; 3) the recapitalisation should always occur using estimated real economic values; 4) direct bank recapitalisation by the ESM should take place based on an approach that adheres to the basic order of first using private capital, then national public capital and only as a last resort the ESM.

As we turn to the US oil market, the DOE/EIA reported that total crude oil and petroleum products stocks slipped -2.67 mmb to 1103.87 mmb in the week ended September 21. Crude stockpile decreased -2.45 mmb to 365.18 mmb as stockpiles rose in 3 out of 5 PADDs. Cushing stock, however, dropped -0.83 mmb to 43.73 mmb. Utilization rate was down -1.5% at 87.4%.

Gasoline inventory slipped -0.48 mmb to 195.83 mmb as demand gained +1.60% to 8.77M bpd. Production fell -2.06% to 8.95M bpd while imports climbed +7.21% to 0.49M bpd. Distillate inventory slid -0.48 mmb to 127.75 mmb although demand climbed +0.52% to 3.70M bpd. Imports slipped -32.08% to 0.11M bpd while production rose +1.03% to 4.61M bpd during the week.

Weekly change in inventory as of 27/09/12 ActualChangeConsensusPrevious
Crude oil 365.18 mmb-2.45 mmb+1.00 mmb+8.53 mmb
Gasoline 195.83 mmb-0.48 mmb+1.00 mmb-1.41 mmb
Distillate 127.75 mmb-0.48 mmb+1.00 mmb-0.32 mmb

Comparison between API and EIA reports:

API (Sep 7)
EIA (Sep 7)
Forecast (using API's inventory level)
Crude oil
+0.34 mmb361.79 mmb+2.43 mmb 
-5.84 mmb
362 mmb
+0.11 mmb197.93 mmb+0.14 mmb 

+1.62 mmb

198 mmb
-0.48 mmb

127.31 mmb

-1.12 mmb 
-0.92 mmb
127 mmb

Oil and Gold Reports contributed by Oil N' Gold