EIA Inventory build was double expectations at 8.87 million barrels...
With Total Crude Supply at its highest since at least 1982...
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Remember how exuberant yesterday's small gains in Crude Oil were perceived to be? Yeah - that's all over, with WTI back near a $44 handle - following a large 12.7 million barrel inventory build according to API (EIA reports the 'main event' at 1030ET today - which Saxo Bank warns "a bigger-than-expected build would likely push the mkt over the cliff edge.") Additional weakness overnight is also likely due to Goldman's shift to a 'sell' for the next 3 months.
Goldman downgrades to "sell"
We downgrade commodities to Underweight on a 3-month basis and upgrade to Overweight on a 12-month basis. Despite the large declines in commodity prices, we see risks as still skewed to the downside over the near-term. Lower oil prices are also driving cost deflation across the broader commodity complex. And roll yields remain negative for most commodity markets, weighing on returns. We expect WTI oil prices close to $40/bbl for most of 1H 2015, which should slow supply growth and balance the global oil market by 2016. We then expect oil prices to move to the marginal cost of production (US$65 for WTI and US$70 for Brent). This suggests a strong recovery from current prices, but the timing is uncertain and we would wait for signs of stabilisation (less inventory build and better roll yields) before shifting to a more positive stance on commodities.
But, as Bloomberg reports, the market is “waiting on the main event of the day, which is the EIA inventory data,” says Saxo Bank head of commodity strategy Ole Hansen.
“A bigger-than-expected build would likely push the mkt over the cliff edge, while a not so strong build could be the ammunition the bulls need to trigger some sort of recovery”
“The mkt is stuck in a tight range, looking for a breakout, but it is unclear in which direction that breakout will be,” says Hansen. “The mkt is torn between general belief you don’t want to miss the opportunity to buy, while at the same time the fundamentals don’t support the recovery”
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Hope springs eternal though...