THE RIGHT STUFF

The suggestion of ample supply contained in API's numbers against the backdrop of the anticipated lackluster retail sales has put crude oil prices under pressure again. Still the market keeps covering the same ground creating a precarious equilibrium that no one appears anxious to break.

The argument divides, as it has for some time, over the viability of sustained recovery. As yet, there is not a growing body of incontrovertible evidence of such, merely isolated hopeful signs. we remind that the EU's problems are far, far from resolved.

While policymakers currently seem unanimous in acknowledging the need for austerity, it is still an open question whether the political will exists to marshal the forces necessary to make any program successful. The "back of the envelope" calculation for oil is hardly friendly to a rising market.

Production is expanding, demand remains constrained, and may become more so if China slows down significantly, which everyone seems to think. The correlation to equities has been closely watched and seems to carry an outsized directional influence. We still think prices need to come a bit lower and establish a base from which oil's price action will chronicle any attempted recovery.  

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