WTI crude oil tumbled to as low as 75.17 after weaker-than-expected new home sales data and surprising surge in crude inventory. Price, however, recovered and traded around 76 for the rest of the day. The front-month WTI contract closed at 76.35, down -1.93% while Brent crude settled at 76.68, down -2.28%.
The US Energy Department reported that total crude oil and petroleum products stocks increased +2.68 mmb to 10.98 mmb in the week ended June 18. Crude oil inventory rose +2.02 mmb, compared with consensus of a -0.8 mmb dip, to 365.1 mmb during the week with gains coming mainly from Gulf Coast. Utilization rate surged to 89.4%, the highest level since April 30 2010 (89.59%).
Distillate stockpile added +0.3 mmb to 156.9 mmb. Production increase +0.72% which was partly offset by -36.67% decline in imports. Demand slipped -1.59% to 3.78M bpd. Gasoline stockpile drew -0.76 mmb to 217.6 mmb. Production dropped -1.31% but imports soared +0.72%. Demand declined -1.04%. MasterCard's survey showed a different result which said motor fuel demand increased +0.4% to 9.311M bpd during the week.
US new home sales slumped -33% m/m to a record low of 300K in May while April's reading was revised down to 446K from previous estimate of 504K. This, together with disappointing existing home sales and housing starts, signaled vulnerability in the housing market in the absence of tax credit.
At the June FOMC meeting, policymakers reiterated to keep the Fed funds rate low, currently at 0-0.25%, for an extended period of time. While this pledge was the same as previous meetings, the Fed's tone was more dovish and more cautious about the economic outlook. The Fed said that 'economic recovery is proceeding' rather than 'economic activity has continued to strengthen' in April's statement. Moreover, the central bank stated 'the pace of economic recovery is likely to be moderate for a time' while 'financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad' - Eurozone's sovereign crisis. Policymakers' comments and poor macroeconomic data inevitably dampened market sentiment.
Worse still, the International Energy Agency (IEA) revised down world oil demand. IEA forecast that annual growth in oil demand will slow to +1% in 2015 from +1.5% in 2010. China growth will moderate to +7.6% in 2010 to +4.1% in 2015 while contraction in OECD countries will accelerate from -0.1% in 2010 to -0.9% in 2015.
Gold plunged to a 1-week low at 1225.2 before recovering to 1234.8 at close. The benchmark contract lost -0.48% on Wednesday. The decline was mainly due to energy-led selloff in commodities. Indeed, we believe the dovish FOMC statement is positive for gold.