SOMETHING HAS TO GIVE

A surprisingly large build in crude oil stocks, contained in last night's API report had led participants to take prices to Monday's lows. The report which registered a  5.87MM bbl rise. was against expectations for a much smaller gain. Additionally, gasoline and distillates also climbed seemingly confirming the slow pace of recovery the global economy is witnessing.

Even more evidence may be found in the Bank Of England's minutes for the August meeting, unveiling 8 out of 9 members voted to keep the policy rate unchanged at 0.5% and the asset buying program at 200 Bn Sterling. Action in bond market's also seem to be predicting Armegeddon, as well.

There is still a considerable way to go before consumers regain confidence in the US economy. Still, demand in developing economies, which will account for all the increase next year, will rise 3.7% in 2011, compared with 4.5% this year, according to IEA. China will contribute about one-third of world demand growth.

The question for today will be then, will the prearious equilibrium the market has staked out near $75 hold? While the EIA report, later this morning may contain the seeds of disappointment, it will need to post a considerable rise in stocks to push prices significantly below that mark. Commodities are gwnerally exuduing a positive tone, while bonds markets are predicting the end of the world. Divergences like this usually pressage big movements.


 

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