Gold price surged yesterday amid resurgence of safe-haven demand as anti-government protests in Iran have killed 2 people and concerns over sovereign crisis in the Eurozone were again under the spotlight. The benchmark contract for Comex gold rose to a 1-month high of 1377.5 before closing at 1374.4, up +0.66%. Oil prices plunged as US retail sales and housing data disappointed. The front-month contract for WTI crude oil weakened for a 9th consecutive day to 11-week low of 83.85 before settling at 84.32, down -0.58%. API's report of unexpected crude inventory draw helped contain the decline, though.

Protests in Egypt spread to other Arab countries such as Bahrain and Yemen, as well as Persian Iran. 2 people were killed and several injured as demonstrators clashed with security forces. In Bahrain, protestors gathered at the Pearl Roundabout traffic intersection in capital Manama, demanding for democracy and an end to discrimination against the Shiite. 2 people were killed. In Yemen, protests enter the 6th day with people calling for an end to President Ali Abdullah Saleh's rule. Geopolitical tensions traditionally push gold prices higher and this probably is a reason for the metal's strength these 2 days. We believe, if the tensions persist and/or spread to other Middle East countries, oil prices will soar as the region holds most of the world's oil reserve.

European finance ministers have so far not finalized details of a rescue fund for debt-ridden countries, sending peripheral bond yields higher. Portuguese Finance Minister Fernando Teixeira dos Santos worried that 'delays and hesitations' would 'affect the Eurozone and the stabilization on the euro'. Should sovereign concerns in the 17-nation escalate, gold should rise and trade in opposite direction with the euro.

Oil prices remained weak as disappointing US economic data raised concerns over recovery. Growth in retail sales eased to +0.3% m/m in January from +0.6% in the prior month. Sales excluding auto gained +0.3%, moderating from +0.5% in December. Separately, NAHB housing market index stayed at 16 in February, unchanged from the prior month but was lower than consensus of 17.

After the market close, the industry-sponsored American Petroleum Institute said that crude oil inventory dropped -0.35 mmb to 345.33 mmb in the week ended February 11. Distillate stockpile fell -1.20 mmb to 159.54 mmb while gasoline stockpile gained +1.20 mmb to 140.93 mmb. The official report to be released by the DOE/EIA probably shows a +2.20 mmb rise in crude inventory and +1.70 mm increase in gasoline inventory. Distillate stockpile might have dipped -0.80 mmb.

Weekly change in inventory as of 11/02/10ChangeConsensusPrevious
Crude oil +2.20 mmb+1.90 mmb
Gasoline +1.70 mmb+4.66 mmb
Distillate -0.80 mmb+0.29 mmb

Comparison between API and EIA reports:

API (Feb 11)EIA (Feb 11)
ActualInventoryPreviousForecast (using API's inventory level)Inventory
Crude oil 346.00 mmb-0.35 mmb

+1.28 mmb

346 mmb
Gasoline 240.93 mmb+1.20 mmb+0.04 mmb241 mmb
Distillate 159.54 mmb-1.20 mmb-4.83 mmb160 mmb

API collects stockpile information on a voluntary basis from operators of refineries, 76% of the time, using data in the past 4 years.