Morning Market Overview

The oil complex continued its upside rally on Wednesday as US crude oil stocks declined for the tenth week in a row as did total combined stocks of crude oil and refined products. The stock decline came as US crude oil production increased strongly last week exceeding the record annual high- level hit in 1970 and just 135,000 bpd below the record monthly high hit in October of 1970.

The destocking pattern remains in play in the US and likely outside of the US. The OPEC accord continues to be validated for yet another week. The spot March Brent contract traded most of the session above the psychological $70/bbl level for the second trading day in a row.

However, the leader in the crude oil complex was the spot WTI contract which gained over 2 percent resulting in the Brent/WTI spread narrowing around 11 percent on the day. The Brent/WTI spread remains wide enough for US exports to economically work but the margin for exports has been narrowing as the Brent/ WTI spread has narrowed from over $6/bbl just a few weeks ago to today’s level of $4.90/bbl.

The above said with imports increasing and refinery run rates starting to throttle down due to weak refinery margins and the advent of the upcoming refinery maintenance season crude oil stocks could be nearing a turnaround to a building pattern. We will be watching this relationship over the coming weeks.

Further supporting oil prices yesterday were the externals… a weakening US dollar and up move in global equity markets. The US Dollar Index (versus 7 main currency pairs) declined by around 1 percent.

A declining US dollar is inversely correlated to oil (and other commodity) prices.

A rising in equities is directionally correlated to oil prices as rising equities are indicative of economic growth and thus growth in oil consumption.