Crude oil price continues to edge lower in European morning as credit tightening in China may weigh on demand outlook. Stock markets drop in both Asian and European session while capitals flow into the dollar.

Last week, trade data by the Chinese Customs suggested that oil demand remained strong in July. However, the situation may start to fade as we enter the third quarter. In China, apparent oil demand in July rose +4.5% yoy despite high base effect in 2008. The strength was driven by increase in refinery runs (+9.2%). According to BP, China has become net importer of oil since mid-90s and the amount of imports has been risen in a dramatic pace. Potential cutback on industrial investments will likely affect fuel demand in the world's third largest economy.

Natural gas resumes recent decline after a mild recovery +1% to 2.91 Wednesday. The US Energy Department will probably report another +52 bcf increase in gas storage to 3256 bcf in the week ended august 21. Oil -to-natural gas ratio has surged to 25.4 recently. Compared with 5-year average of 9.56 and standard deviation of 3.3m the ratio is abnormally high. According to the theory of mean reversion, the ratio should eventually move back to the mean. That is, natural gas should rise and/or crude oil price should fall. However, current demand situation suggests further downside for gas price cannot be ruled out.

The OPEC will meet on September 9. While it's widely expected that the cartel will announce 'no change' in production quota, the market has paid close attention to oil ministers recently. Last week, Kuwait's oil minister said the organization does not need to alter output as oil prices 'are not too bad, not too good at all'. Nigeria is content with oil prices between about 70-80. Although not subject to quota, Iraq suggested that the OPEC should maintain oil production levels while 'there's room for improvement' in oil price.

Gold price has little change today. According to Bombay Bullion Association, gold imports may decline -37% yoy to 250 metric tons this year due to high cost and reduced disposable income.

Stock markets retreat amid concerns that global economic growth will slow down. In Asia, the MSCI Asia Pacific Index slid -0.5% which Japan's Nikkei 225 Stock Average dropped -1.65 to 10474.Japan should have sank deeper into deflation and the nationwide CPI probably contracted -2.3% yoy in July following a -1.8% drop in the previous month. Core CPI (excluding fresh food) should have declined -2.2% yoy during the month. In European morning, UK's FTSE 100 Index fluctuates between gains and loss. Germany's DAX dropped -0.44% while France's CAC 40 Index added +0.04%.

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