Crude Oil Weak on OPEC Production

WTI crude oil gained 0.19% after a report showed stockpiles rising in the U.S., the world’s biggest crude consumer. The weekly API leading indicator report for the official EIA report showed an increase to current inventories. The American Petroleum Institute (API) report last night, US crude oil inventories rose unexpectedly by 4.27 million barrels to 375.78 million barrels for the week ending on 7th December 2012. Gasoline inventories rose around 2.76 million barrels to 209.26 million barrels and whereas distillate inventories also gained by 2.24 million barrels to 117.73 million barrels for the same week.

Today traders are expecting the Federal Reserve will increase monetary accommodation by announcing USD45 bn in monthly Treasury buying that will push its balance sheet almost to USD4 trillion.  Additional stimulus will be a positive for crude oil.

US lawmakers need to agree on a budget to prevent more than USD600 bn of automatic tax increases and spending cuts from coming into effect next year.

US stocks rallied, with the Dow Jones Industrial Average erasing its decline since Election Day, as investors weighed progress in US budget talks and German investor confidence jumped. Treasuries fell.

Nymex crude oil prices traded on a flat note and declined marginally by 0.1 percent yesterday on the back of rise in the US crude oil inventories. Additionally, expectations that the Organization of Petroleum Exporting Countries (OPEC) will keep the output target unchanged at 30 million barrels a day in today’s meeting also added downside pressure on the crude oil prices. However, weakness in the DX cushioned further fall in the crude oil prices. Oil prices touched an intra-day low of $85.21 and closed at $85.66 in yesterday’s trading session.

Today we can expect crude oil prices to trade higher on the back of positive global market sentiments, expectations of decline in the crude oil inventories along with weakness in the DX. Also, optimism that US Federal Reserve might announce stimulus package to boost the economy may support an upside in the Crude oil prices. Markets have also been assured once again by the Obama Administration and Congressional Leaders that a deal would be reached before the January 1, 2013 deadline.

Once the FOMC is behind traders will be more likely to buy crude oil, but traders seem to be split on the expectations from the FOMC, recent polls show a strong possibility of stimulus, but Mr. Bernanke’s history tells us never to predict what to expect.

It is my belief that the FOMC will hold off on or offer limited stimulus ahead of the US lawmaker’s tax cuts and budget cuts to resolve the US Fiscal Cliff. With the Fed’s mandate limiting them to inflation and employment, they might not see a demand for more stimulus at this time. Gold traders seem to be holding prices supporting the idea of limited stimulus.