Oil changed in European session as prices consolidated after the sharp selloff last Friday. Currently trading at 88.9, the front-month contract for WTI crude oil plunged almost -2% on Friday as US non-farm payrolls addition missed expectations and the unrest in Egypt appeared to have eased. Oil shipments from Suez Canal were not disrupted.

Concerns about Suez Canal and SUMED Pipeline operations were driven by the market's focus on the Middle East as an oil exporter. Indeed, oil demand in the region has expanded significantly over the past few years due to robust economic growth. According to the IEA, oil demand in the Middle East grew by an average of +6% over the past 5 years and expanded more than +4% y/y to 7.5M bpd in 2010. Demand is expected to rise further to 7.9M bpd in 2011.

Gold price moved sideways within 1340-1350 while silver traded narrowly above 29 with a mildly upward bias. Gold and silver prices have stabilized as the drops have been contained by physical demands. Apart from China and India, gold demand was also robust in other emerging markets. Turkey's gold imports reached a record higher of 11.12 metric tons in January, compared with 0.7 metric tons in December and with 0.06 metric tons the same period last year.

Another bullish feature for gold price is rising food prices. According to UN's Food and Agricultural Organization, the FAO Food Price Index (FFPI) rose for the 7th consecutive month, averaging 231 points in January 2011, up +3.4% from December 2010 and the highest (in both real and nominal terms) since the index has been backtracked in 1990. Prices of all the commodity groups monitored registered strong gains in January compared to December, except for meat, which remained unchanged. Escalating food prices are bullish for gold prices from an inflationary and geopolitical standpoint. While the metal's movement may not reflect the situation in the near-term, we expect to see the impacts in the long-term.

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