A combination of the US Central Bank pledging low interest rates until 2014 combined with less bad news out of Europe was enough for the oil complex to continued to firm even after a mixed EIA oil inventory report (see below for more detailed discussion) which showed a larger than expected build in crude oil stocks. The US Fed extended the timeframe with which it will keep short term interest rates at near zero from mid 2013 to 2014 strongly suggesting the Fed will continue in an accommodative monetary policy for years into the future. An easy money policy should ultimately result in helping the US economy to continue to recover and start a more accelerated growth pattern. If so it should result in a return to oil consumption growth and thus the bullish or positive result of the oil market over the last twenty four hours as well as the broader commodity complex.

Around the world the New Zealand Central Bank also announced that they plan to keep short term interest rates low for an extended period of time while South Korea reported their slowest economic growth rate as exports to Europe from Asia continues to slow . The global economy is growing but at a slower then expected pace from just a few months ago. The European crisis is weighting on the global economy and as such the IMF just lowered its expected growth rates for 2012 yet again. Lower global economic growth will certainly result in lower oil consumption growth especially if the major oil consumption growth engines of world... the emerging market world like China, South Korea, etc are slowing as the emerging market countries represent nearly all of the oil consumption growth while the developed world countries have experiences flat to even declining consumption patterns.

Debt talks are expected to continue in Greece today with a hope that a solution can be reached as to the size of the haircut the bond holders will have to take to prevent a complete default of Greece. In the very short term this is the main event evolving in Europe that could have an impact on global risk asset markets in the short term. For now there is still a bit more optimism that a negotiated solution will be reached rather than a chaotic default process that could result in Greece getting squeezed out of the EU and increasing the risk of contagion to other southern EU member countries.

So far the rally in global equities that started at the beginning of the year has continued this week as shown in the EMI Global Equity Index table below. The Index is now up by 0.5% for the week resulting in the year to date gain widening to 8%. In the first three weeks of 2012 the EMI Index has now recovered a little more than half of the loss from 2011 (lost 15.2%). Definitely a strong performance and one that has been occurring in a back drop of more and more projections for a slowing of the economic growth rate of the global economy. The global equities markets have been a positive for oil prices as well as the broader commodity complex. That said the equity markets are bordering on being overbought and are becoming more susceptible to a round of profit taking selling which when it occurs will certainly result in a similar action taking place in the oil complex. Yesterday's EIA inventory report was mixed with crude oil bearish and refined products neutral to bullish even as it showed a modest build in total stocks, a larger than expected build in crude oil, but a larger than expected draw in distillate inventories as implied demand was increased across the board while refinery utilization rates decreased on the week to 82.2% of capacity a decrease of 1.5% in refinery run rates. The data is summarized in the following table along with a comparison to last year and the five year average for the same week. Total commercial stocks of crude oil and refined products increased modestly on the week by 3.6 million barrels after declining over 3.4 million barrels the previous week. The year over year status of total commercial stocks of crude oil and refined products remains in a deficit position for the 43rd week in a row. The year over year deficit came in at 36.4 million barrels while the deficit versus the five year average for the same week came in around 0.8 million barrels.

Crude oil inventories increased strongly versus an expectation for only a modest build. With a decrease in stocks this week the crude oil inventory status versus last year is now showing a deficit of around 5.8 million barrels while the surplus versus the five year average for the same week widened to around 11.7 million barrels. PADD 2 stocks increased marginally on the week while Cushing stocks increased by about 0.4 million barrels. Crude oil inventories in this region of the US have been in a decline and are still at levels not seen since 2010 when the Brent/WTI spread was trading at significantly lower levels. The spread continues to hold its gains for the week mostly due to the concerns over the possible EU embargo of Iranian oil purchases.

Distillate stocks decreased modestly versus an expectation for a small build. Heating oil/diesel stocks increased by 2.5 million barrels. The year over year deficit widened to 20.1 million barrels while the five year average deficit widened to about 2.2 million barrels. With the economics and demand still likely to hold outside the US and unless the upcoming winter heating season starts to get much colder the current level of exports will likely continue.

Gasoline inventories drew marginally on the week versus an expectation for a modest build. Total gasoline stocks decreased by about 0.4 million barrels on the week versus an expectation for a build of about 1.7 million barrels. The deficit versus last year came in at 2.9 million barrels while the surplus versus the five year average for the same week narrowed to about 3.4 million barrels.

The following table details the week to week changes for each of the major oil commodities at every level of the supply chain. As shown I have presented an mixed categorization with crude oil the only bearish commodity in the complex but with an asterisk in my view as imports are in makeup mode from a large decline in the previous reporting period. I would expect to see another increase in imports next week. The WTI market remains above support and has moved back in the direction of making a move toward the upper end of the trading range. However, I am still keeping my view at neutral. I am currently expecting intermediate support around the $97.60/bbl area basis WTI and $109.50/bbl level for Brent with resistance around the $104/bbl level for WTI and $113.75/bbl for Brent. I am keeping my view and bias at neutral primarily because we are in the midst of a modest short covering rally ( as we saw this week so far) as it looks like producers may be starting to shut some marginal dry gas production. 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.

Currently markets are higher as shown in the following table below.

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