The market ignored strong economic data in the US and continued to dump stocks, commodities and other risky assets as contagion fears escalated. Moody's warning of downgrade, deaths caused by violence in Athens and ECB member Axel Weber's comments that Greece crisis is a 'of grave contagion effects' for other Eurozone countries were deteriorating market confidence.

WTI crude oil price plummeted to 79.15 before rebounding to 81.66 where it met severe selling pressure again. The benchmark contract eventually settled at 79.97, down -3.35%, after a -4% decline Tuesday. Gasoline and heating oil also got hammered these 2 days. The former lost -4.38% yesterday following a -4.64% slide Tuesday while the latter plunged almost -7% over the past 2 days.

The US inventory report was disappointing. Crude oil inventory surged +2.76 mmb to 360.6 mmb in the week ended April 30, despite rise in utilization rate. Compared with market expectation of a +1.1 mmb build, the actual increase was more than double and a large part of it was driven by Cushing stock which soared +1.68 mmb to a record high of 36.2 mmb.

Gasoline stockpile rose +1.26 mmb as decline in production was more than offset by surge in imports. Demand was flat during the week. We expect inventory to being dropping in coming weeks as the driving season arrives. Distillate stockpiles climbed +0.57mmb but demand improved +8.28% to 3.895M bpd.

The report did not have much impact on prices yesterday as the market focused on Greece debt problems and the risk of contagion to other Southern European countries. Moody's said that it's reviewing the credit rating of Portugal (currently at Aa2) and might downgrade it as the country's public finances and the economy's long-term growth are being challenged.

In Greece, protests against the government's measures to reduce deficit have resulted in casualty as 3 people died in a fire in Athens. This increased the skepticism on the ability of the Greek government to implement the planned austerity measures.

The ECB Council member Axel Weber said Greece's fiscal crisis is 'threat of grave contagion effects for other member states in the monetary union and increasing negative feedback loop effects on capital markets'.

Gold, after plunging in concert with other commodities amid USD's strength, reversed losses in NY session and ended the day higher at 1175, +0.50%.

EURUSD, after breaking below the psychological support at 1.3, accelerated the decline and slipped to as low as 1.279 yesterday. Gold's intraday reversal despite the euro's weakness was impressive as it signaled heightened risk aversion - investors find both USD and gold as safe-haven assets. While the norm for USD and gold's correlation is inverse, the 2 instruments move inline when there is high uncertainty in the market and/or when there is financial crisis. We believe the situation that both USD and gold rise while the euro falls can last for some time, until European leaders find the ways out of controlling the sovereign crisis.

The ECB will meet in Portugal for monetary decision. We expect the central bank will keep the main refinancing rate unchanged at 1% and state interest rates at current levels are 'appropriate' given 'balanced' risks in both sides in growth and benign inflation. Focus of the press conference will be on Greece and peripheral European economies. The ECB announced earlier in the week that it will accept Greek bonds as collaterals until further notice. This is the flexibility of the ECB to help Greece and the euro. However, this may serve as a precedent for other debt-struck European economies such as Portugal, Spain and Ireland who may request for the same treatment should their bonds be downgraded below the threshold.