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| Analysis | Crude oil rose significantly yesterday after the EIA reported an unexpected drop in U.S. inventories that shocked the market and pushed it to the upside despite the pessimistic data released yesterday from the European continent. The EIA report showed that the U.S commercial crude oil inventories decreased by 4.7 million barrels from the previous week, where the expectation were to see a rise in inventories by 1.5 million barrel. At 336.3 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 1.1 million barrels last week and are above the upper limit of the average range. Oil for November delivery is currently trading around $80.25 a barrel after recording a high of $80.32 and a low of $79.40 since it opened the session at $79.79. Investors are a little optimistic over the outlook for the U.S. economy after the Fed chairman signaled that they would announce more stimulus if the economy needed, which in somehow relived investors’ fears over the U.S. economy that is experiencing fragile growth, where the ADP showed a recovering labor sector with better than expected figures. Today, the focus will remain on the European continent as the Bank of England along with the European Central Bank will announce their rate decisions and whether they will keep their monetary stance or provide more monetary easing amid the debt crisis in the region. As for ECB, it is expected to take action to help the economy and to provide measures that would hold the market and ensure financial stability and ample liquidity, especially after Moody’s move by downgrading the Italian bonds’ rating, also, the rising possibility of a Greek default after the government couldn’t reach the budget deficit target for this year and next year, which put many questions on the table whether the IMF/EU will give Greece the sixth tranche of last year’s bailout since it showed a possibility of not meeting their commitments. Although, the European leaders said that they will not leave the European Banks alone, as they are going to support them with more liquidity in order to avoid another credit crunch in the region which is what the market is speculating and easing some of the pressure. On the other side, the BoE will announce its rate decision and for the APF, where yesterday’s data showed slowing GDP growth along with slowing growth in the service sectors, which put more negative pressures on the bank and makes it difficult to take the decision amid slowing growth and rising inflation more than double the bank’s target. Any unexpected more from both banks can help crude to climb more despite the debt crisis, but if the two banks couldn’t erase the fears in markets, we will see a huge drop in markets especially on crude oil, as investors need the unexpected from banks, and since crude oil is a very growth sensitive commodity, the only thing that helped crude these days is the EIA report along with hopes that leaders would help their economies, especially the Europeans to take further actions in order to contain the crisis. |
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