Crude oil rises to as high as 64.9 in European morning as accompanied by rally in stock markets and weakness in USD. A report saying that operating rates in Chinese refineries rose to 85.12% also boosted price. CIT Group, whose request for federal bailout was rejected last week, may announce an agreement for $3B in financing from bondholders. This restored investors' confidence to the macro outlook.

Gold for August delivery surges to 954, the highest level in more than a month, as the dollar slides to 1.424 against the euro and 1.653 against the pound. Concerning commodity currencies, the greenback plunges -1.7% against NAD, -1.6% against AUD and -1.3% against CAD. Other precious metals also advance with silver gaining +2% to 13.69 and platinum adding +1% to 1188.

The Russian President Dmitry Medvedev visited Africa and Central Asia late last month concerning several oil and gas deals. The trips indicated the government's determination to extend its influence in these countries. Moreover, it posed a threat to other European energy suppliers.

In the 4-day trip to Africa, Medvedev visited Egypt, Nigeria, Namibia and Angola and witness the signing of a $2.5B JV agreement between its gas export monopoly, OAO Gazprom, with Nigeria's state oil company, Nigerian National Petroleum Corp. The JV will big in a tender to develop 2 gas fields with combined reserves of 2.3 trillion cubic meters. In Namibia, the lending arm of Gazprom agreed to finance Namcor, Namibia's state oil company, as much as $1.2B for construction of an 800 megawatt power station. In the trip to Azerbaijan, the President signed another gas agreement with the State Oil Company of the Azerbaijan Republic to buy 500 cubic meters of Azeri gas starting January 2010.

As the world's second largest oil exporting country (after Saudi Arabia) and the largest gas exporter, Russia's economic growth has been affected by rises and falls in oil prices. Statistics showed that crude oil, petroleum products and gas accounted for 65% of total exports in 2008 and 56% in 2009. On the fiscal side, oil and gas revenue accounted for 47% of federal budget revenues in 2008 and 32% in the first 5 months of 2009.

Sharp fall in oil price since July 2008 has hammered economic growth in Russia. In 1Q09, GDP contracted -9.8% yoy after growth was trimmed to +1.2% in 4Q08 from +6% in 3Q08. As oil price has recovered 30% of the loss after finding a bottom at 33.2 in January, investors begin to wonder how Russia will benefit. However, research told us the impact is not as great as one has expected.

In 2008, Katsuya Ito found that 'a 1% increase in oil prices contributes to real GDP growth by +0.25% over the next 12 quarters whereas that to inflation by +0.36% over the corresponding period'. However, the impact of monetary policy on economy almost doubles that of oil price. Similar results was found by Rautava in 2002 that 'in the long-run a 10% permanent increase (decrease) in international oil prices is associated with a +0.22% growth (fall) in the level of Russian GDP'. These findings suggested that it takes a long time for oil price to be passed to economic growth. We believe high tax and the government Oil Funds are the main reasons.

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