A prominent feature in the oil market yesterday was that WTI crude oil closed at backwardation for the first time in 3 years. Moreover, the spread between WTI and Brent crude also narrowed to below 20/bbl. This was despite API's report that crude oil inventory climbed more than expected last week. Concerning the financial market as a whole, profit-taking was seen ahead of the EU summit. As we mentioned yesterday, the potentially positive news should have been priced in over the past weeks.

WTI crude oil price surged for a third day, rising to as high as 94.65 before settling at 93.17. up +2.08%. The advance in recent days has taken WTI crude to backwardation, signaling a drop in supply or a rise in demand in the near-term. The WTI-Brent gap probably formed a bottom 2 weeks ago and has narrowed since then. While market sentiment has been robust on speculations that European policymakers will formulate a substantial and durable plan to resolve the sovereign debt crisis, Brent crude has underperformed WTI crude. This suggested that investors were not too bullish over European economic outlook.


The industry-sponsored API reported that crude inventory rose +2.71 mmb to 340 mmb in the week ended October 21. Gasoline stockpile climbed +0.15 mmb during the week. The DOE/EIA will probably report a +1.48 mmb increase in crude stock and a +1.75 mmb rise in gasoline storage.

The Bank of Canada left the policy rate unchanged at 1% and delivered a more dovish statement citing weakening global and domestic economic outlook. The latest growth forecasts showed that GDP will expand +2.1% in 2011 but much of it has been achieved in the first quarter. In 20112, growth will ease to +1.9% before rebounding to +2.9% in 2013. As growth weakens, core inflation is expected to be 'slightly softer than previously expected, declining through 2012 before returning to +2.0% by the end of 2013'. The projection for total CPI inflation has also been revised down, reflecting the recent reversal of earlier sharp increases in world energy prices as well as modestly weaker core inflation. The central bank now forecast inflation to trough at +1.0% by mid-2012 and then rise to +2.0% by end-2013.

Weekly change in inventory as of 21/10/11 ChangeConsensusPrevious
Crude oil  +1.48 mmb-4.73 mmb
Gasoline  -1.75 mmb-3.32 mmb
Distillate  -1.50 mmb-4.27 mmb

Comparison between API and EIA reports:


  API (Oct 21)   EIA (Oct 21) 
 ActualInventoryPrevious Forecast (using API's inventory level)Inventory
Crude oil+2.71 mmb340.01 mmb-3.13 mmb +7.11 mmb340 mmb
Gasoline+0.15 mmb209.72 mmb-1.64 mmb +3.45 mmb210 mmb
Distillate-1.80 mmb147.91 mmb-2.20 mmb -1.83 mmb148 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