Crude oil- 27th October

An article in the wall Street Journal suggesting that the Fed might go
easy on QE2 has buoyed the Dollar higher since morning. The suggestion
that Fed might take a more measured approach in the imminent bond
buying exercise affected the markets which had more or less priced in
a larger figure from the Fed. The Dollar which has weakened for weeks
on the expectation of a much higher amount of buying by the Fed
climbed up on this news. The equities and commodities are coming down
as a result.

Analysts at Bank of America-Merrill Lynch wrote in a client note the
prevailing market belief was that QE was now close to being fully
priced in and anything short of $500 billion in announced purchases
over a six-month horizon could disappoint and cause yields to rise and
hence the Dollar to rise as well.

November 2-3, we have the FOMC meeting where the committee will decide
on the extent and manner of easing. This whole week can be pretty
choppy because even the slightest of rumours has the potential of
disturbing the equilibrium that the market is trying to seek before
the meeting. Every time we feel the expectation is fully priced in, we
might see more rumours trickling in. Knowledgeable but opinionated
parties, with huge weight in their words, are on either side of the
debate. Promoters of a larger QE talk about the very weak unemployment
rate and the dire necessity of a stronger demand to push it down.
There are others who suggest that Fed should watch more keenly and
much longer before committing itself to a larger than required effort.
They warn of the harms of money not finding its right course and
feeding asset bubbles. The problem with the market is that when it is
uncertain it follows everybody.

Elsewhere API built a whooping 6.5 million barrels in crude against an
expectation of 1 million barrels. Distillate stocks also built against
an expectation of drawdown while gasoline drew close to 2 million bbls
against an expectation of a built.

The French strike has shown signs of easing down and few refiners have
already opened up their units. Brent spreads showed strength in the
last two days. The products prices are expected to come down and hence
the cracks can be weak