We believe crude's rally in NY session Wednesday despite rise in oil inventory and mixed economic data was because traders focused on decline in utilization rate and increase in gasoline demand. WTI crude oil surged to as high as 78.13 before settling at 77.67, up +0.95%. Brent crude also soared, by +1.37%, to 78.68.

Total crude oil and petroleum product stock surged +4.44 mmb in the week ended June 11. Crude oil inventory increased +1.69 mmb to 363.1 mmb in the week ended June 11, compared with market expectations of a dip of -1.75 mmb. The gain came mainly from Midwest where +1.69 mmb was recorded, partly offset by slides in the East Coast and the Rocky Mountain. The Gulf Coast also saw mild increase. Stock at Cushing, where WTI crude is stored, added +0.19 mmb to 37.6 mmb during the week. Utilization rate slid to 87.9% from 89.1 a week ago.

Gasoline stockpile slipped -0.64 mmb to 218.3 mmb although production and imports rose +1.76% and +6.35% respectively. Demand increased +1.57% to 9.338M bpd, the highest level since August 2009. While we believe gasoline stockpile should have dropped further during driving season, some analysts are content with the result, citing strong gasoline yield has shifted production to gasoline, hence more stock than usual. Distillate rose +1.8 mmb to 156.6 mmb as +14.4% increase in imports was only partly offset by -2.22% drop in production. Moreover, demand slid for a second week, by -1.49%, to 3.85M bpd.

US economic data depicted a mixed picture. Industrial production soared +1.2% m/m in May while manufacturing production was up +0.9% m/m. However, housing data was again disappointing with housing starts falling -10% m/m to 593K and building permits slipping -5.9% to 574K. Both readings were markedly below market expectations. As we mentioned yesterday, weaker-than-expected housing data further evidenced that strong readings in previous months were mainly driven by expiry of tax credit for first-time home buyers, rather than solid recovery in the property market.

In the currency market, the euro weakened after rising over the past 6 trading days amid renewed concerns over Spanish banking system. Although the central bank said it might report the findings of its stress tests so that the public could have full knowledge of the country's banking system, investors remained unnerved by the news about EU/IMF's approval of loans to assist Spain.

Slump in the euro as driven by sovereign crisis and doubts about the credibility of the shared currency have sent Swiss Franc to elevated level. The SNB has pledged to prevent the franc's appreciation against the euro since March 2009 so as to maintain competitiveness of Swiss economy. While the central bank appeared to have 'given up' since late last year, probably due to encouraging economic recovery, it reiterated it would act decisively to prevent any 'excessive' (vs 'any' used in December 2009) appreciation of the Swiss franc against the euro at the March meeting. We are interested to see if the SNB would give any change in stance at the meeting today.

Gold was a tad lower yesterday as price remained in consolidation with a range of 1220 and 1240. In the medium- to long-term, uptrend should remain intact as European woes and contagion worries should drive demand for safe-haven assets.