Crude Oil Rebounded Amid Strong US Eco Data

Crude oil price rebounded strongly Tuesday as OPEC raised oil demand forecasts for 2009 and 2010, US economic data beat market expectations as well as Fed Chairman Ben Bernanke said that US recession has ‘very likely’ ended. The October contract surged to as high as 71.19 before finishing the day +3% higher at 70.93. Heating oil and ROBO gasoline also rose +2% to 1.7801 and +2.6% to 1.7892 respectively. However, selling pressures were seen after the industry-sponsored API reported inventory gains in all of crude, gasoline and distillate.

OPEC slightly upgraded its forecasts on world oil demand to 84.05M bpd (previous: 83.91 M bpd), -1.8% yoy, in 2009 and 84.56M bpd (previous: 84.41M bpd), +0.6% yoy, in 2010 as driven by improved global economic development. The world GDP growth was also revised up by +0.2% to -1.2% in 2009 and by +0.1% to 2.5% in 2010.

US retail sales rose +2.7% mom, compared with consensus of +1.8%, in August following a -0.2% decline in the prior month. The major contributor of the increase was from autos which rose +10.6% in the month. Excluding autos, the reading increased +1.1%, also better than market expectation of +0.4%, as driven by gasoline sales. What surprised the market the most was the ex auto ex gasoline retail sales also beat estimates and rose +0.6%, signaling improvements in other areas such as clothing, sporting goods and electronic appliances.

Empire States manufacturing index surged to 22-month high at 18.9 in September, higher than market forecast of 14, from 12.08 in July. This suggested manufacturing activities in the New York region is expanding more rapidly than expected. The ‘new orders’ component rose to 19.8 but ‘shipment’, ‘inventories’ and ’employment’ components slid from the previous month.

At a speech about financial crisis in Washington, the Fed Chairman Ben Bernanke said that ‘even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time’. Concerning employment, the Chairman commented that the employment rate will be slow to come down. Obviously, the Chairman comment was less upbeat than what was portrayed in news headlines but investors’ sentiment was boosted by better data and whenever they heard about words such as ‘recovery’ and ‘recession ends’!

After US market close, API reported disappointing inventory data which showed that crude stockpile rose +0.63 mmb, compared with consensus of a -2.9 mmb decline, to 336.9 mmb In the week ended September 11. Fall in refinery runs and increase in domestic production offset the decline in import. Gasoline stockpile rose +1.35 mmb to 208.8 mmb while distillate stockpile added 5.2 mmb to 170 mmb. Both gains were higher than market expectations, suggesting sluggish demand in the market.

The market awaits the US Energy Department’s report. Consensus forecast that crude oil inventory drew -2.5 mmb while both gasoline and distillate inventories gained, by +0.7 mmb and +1.25 mmb respectively.

Gold price rebounded in NY session yesterday and ended day at 1006.3, the third daily close above 1000 amid weakness in USD. Silver also gained +2.3% to close at 17. As world central bankers are going to keep interest rates low for some time, it provides a positive environment for precious metals.

US Oil Inventory

Comparison between API and EIA reports:

API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department (EIA)for its weekly survey.  Oil inventories from the API and EIA moved in the same direction for over 70% of the time, using data in the past 4 years.

Source: Bloomberg, API, EIA