Crude oil price (the September contract) plunges to 68.9 after a +3.7% rebound Tuesday, as stocks in China fell sharply. Investors worried that tighter lending conditions in China, the locomotive of world economic growth, will affect world recovery. Added to the concerns was the decline in China's oil-product sales in July.
The Shanghai Composite Index plunged -4.3% to 2786. From the 2009 high of 3478 made on August 4, the gauge has corrected almost -20%. Other regional benchmark indices also got hammered with Hong Kong's Hang Seng Index sliding -1.7% to close at 19954 and Japan's Nikkei 225 Stock Average losing -0.8% to 10204.
According to the China Petroleum and Chemical Industry Associate, China's sales of domestic oil products have dropped significantly in July while commercial fuel stockpiles surged substantially during the month.
Concerning supply, Kuwait's oil minister said that the OPEC will very likely keep oil production unchanged when the members meet in September as oil prices are 'not too bad, not too bad at all'. In fact the OPEC should adhere more strictly to the quotas even though there's no further production cut. Statistics show that the cartel raised production in July and compliance with quotas has been weakened for 4 consecutive months.
Base metals got big hits as previous rallies were driven by optimism in growth in China. LME copper for 3-month delivery plummets -2.6% to 5925, the lowest since August 7. Others in the base metal complex also decline with aluminum, lead and tin sinking -1.8%, -1.6% and -3.9%, respectively.
Gold price retreats in European morning as USD strengthens again. While EURUSD hovers around 1.41, GBPUSD plunges to 1.6404, paring the -1.4% gain made Tuesday, after the BOE minutes for the August meeting revealed that Governor Mervyn King, together with 2 other officials voted for bigger expansion of the asset buying program. This damped some market players' expectations that BOE will begin tightening as early as 1Q2010.
According to the World Gold Council, demand for gold dropped -8.6% yoy to 719.5 metric tons in 2Q09. Major contributor for the decline was jewelry consumption which dropped -22% due to high gold price and ongoing global recession.
Geographically, reduction in gold jewelry demand was seen almost everywhere, except for China which showed a +6% increase during the period. According to the report, the rise was driven by 'healthy rates of economic growth, stability in the local currency and a raft of government measures aimed at mitigating the impact of global downturn.
The World Gold Council believes that 'consumers are not waiting for an opportunity to buy back some of the gold [sold previously] at lowers prices'. The outlook on gold demand depends on both gold price and price expectations. With regard to recent trend of lower gold sales by central banks, the World Gold Council believes it indicates the central banks' intentions on portfolio diversification.