Gold surged to a new record-high in NY session Tuesday amid lingering woes over Greek sovereign crisis. The benchmark contract for the yellow metal rallied to as high as 1235.2 before settling at 1220.3, up +1.62%. Silver jumped +4% to 19.294. PGMs also rose but the gains were modest with platinum and palladium adding +0.43% and 1.47% respectively. Commodities that have more direction link with economic cycles got hammered with WTI crude sliding -0.56% to 76.37. Brent crude, however, climbed +0.5% higher to 80.49. Base metals also got hit with losses ranged from 1-3%.

Despite positive market reactions after EU and IMF announced the 750B euro stability package, rallies in risky assets lost steam quickly. It indicates that investors are skeptical about the effectiveness of the plan in containing the crisis. Economists in the street comment that the main problem in Europe is 'solvency' rather than 'liquidity'. Therefore, the government should find ways to reduce deficits and the package does not really address the real problem.

In the medium- to long-term, economic recovery in the Eurozone remains fragile. In IMF's report released earlier this week, 'aiming to stabilize public debt in the short run is neither feasible nor desirable, given the risk of a relapse into recession and the magnitude of the required fiscal retrenchment...however, sustainability indicators are flashing warning signs about the public debt in most countries, and sizable consolidation efforts are needed in the medium term'. The world lender said Europe's performance remains 'weak compared with the recoveries under way in other parts of the world'.

Specifically to the oil market, API reported crude oil inventory rose +0.362 mmb, with relatively large build (+0.783 mmb) coming from Cushing. Gasoline stockpile dropped -0.906 mmb while distillates inventory climbed +0.094 mmb. The set of data was better than expectations as analysts had anticipated crude and distillate builds of over +1 mmb while gasoline stockpile also rose modestly.

Similar to OPEC, the US Energy Department also upgraded its global demand outlook. Demand will increase +1.90% y/y to 85.84 mmb in 2010 and then +1.25% to 86.91 mmb in 2011. These are compared with April's projections of 85.66 mmb in 2010 and 86.91 mmb in 2011. According the Short-term Energy Report, the upward revisions hinge on upgrade in global economic growth which is forecast to rise on average about +3.6% y/y. The growth in oil consumption is expected to be largely concentrated in the Asia-Pacific and Middle East regions.

Also similar to OPEC, the US Energy Department expects non-OPEC supply will increase with the largest source of growth in 2010 is the United States, followed by Brazil, Azerbaijan, and Kazakhstan.

Weekly change in inventory as of 07/05/10
Change
Market Expectation
Previous

Crude oil
 
+1.60mmb
+2.76 mmb

Gasoline
 
+0.80 mmb
+1.26 mmb

Distillate
 
+1.30 mmb
+0.57 mmb

Comparison between API and EIA reports:

     

 
 
API (May 7)
 
 
EIA (May 7 )
 

 
Actual
Inventory
Previous
 
Forecast (using API's inventory level)
Inventory

Crude oil
+0.362 mmb
363.1 mmb
+3.00 mmb
 
+2.43 mmb
363 mmb

Gasoline
-0.906 mmb
222.4 mmb
+1.50 mmb
 
-2.94mmb
222 mmb

Distillate
+0.094 mmb
150.7 mmb
+1.70 mmb
 
-1.39 mmb
151 mmb

     

API collects stockpile information on a voluntary basis from operators of refineries, 76% of the time, using data in the past 4 years.

Source: Bloomberg, API, EIA