Commodities erased losses made in Asian and European sessions and rallied strongly in the NY session as optimism from global financial sectors and strong US retail sales boosted sentiment. WTI crude oil price, halting the 6-day decline, surged +2.68% to settle at 74.07. Gold rebounded after plunging to as low as 1185 as levels below 1200 attract emerging-market buying.

Wall Street traded quietly in early trading but then jumped after State Street, the third largest US custody bank, reported second-quarter operating profit that beat estimates. Strong earnings in State Street ignited optimism as the reporting season approaches. A Bloomberg survey forecast profit for S&P 500 companies to soar +34%, compared with +27% as previously estimated. DJIA and S&P 500 soared +2.8% and +3.1% respectively as boosted by market optimism.

In the Eurozone, the Committee of European Banking Supervisors released more details of the upcoming European bank stress tests. On July 23, results of the tests covering 91 European banks will be released. According to Bloomberg, the tests assumed a 17% loss on Greek Government debt and 3% on Spanish bonds. Also, haircuts on German government securities will not be included. At first glance, the tests do not look as tough as previously expected.

After a series of disappointing economic data released over the past 2 weeks, a report by ICSC-Goldman Sachs showed that US retail sales increased +1% for the week ended July 3. On the first 5 month of the retail fiscal year started on January 31, sales grew at an average monthly rate of +4%, the strongest since 2006. The report eased some of the market concerns regarding economic slowdown.

Specifically to oil, the industry-sponsored API said the crude inventory declined -7.3 mmb to 358.1 mmb, the lowest level since March, in the week ended July 2. Stockpiles for gasoline and distillate also dropped -0.1 mmb and -1 mmb respectively. While the market is awaiting the US Energy Department's report which will be released later today, API's data has lent support to oil prices.

Today in Asia, WTI crude oil price extends gain to 75 as the US Energy Department revised up global oil demand forecasts while the IMF raised the global economic outlook. The Energy Department forecast global oil demand will rise to 85.82M bpd, +1.9% y/y, in 2010. The agency had anticipated a milder increase to 85.51M bpd last month. The IMF forecast that the world economy will expand +4.6% in 2010, compared with +4.2% projected in April. This is the biggest growth since 2007. Growth for 2011 is expected to be +4.3%, unchanged from the April forecast.

Weekly change in inventory as of 02/07/10
Change
Market Expectation
Previous

Crude oil
 
-2.00 mmb
-2.01 mmb

Gasoline
 
+0.10 mmb
+0.54 mmb

Distillate
 
+1.60 mmb
+2.46 mmb

Comparison between API and EIA reports:

API (Jul 02)

EIA (Jul 02 )

Actual
Inventory
Previous

Forecast (using API's inventory level)
Inventory

Crude oil
-7.30 mmb
351.8 mmb
-3.40 mmb

-11.12 mmb

352 mmb

Gasoline
-0.10 mmb
220.2 mmb
-0.91 mmb

+1.89 mmb
220 mmb

Distillate
-1.00 mmb
157.6 mmb
+3.90 mmb

-1.38mmb
158 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