Commodity markets remained under pressure in the European session. Although the decline of crude oil stabilized with front-month contract for WTI crude oil recovered after falling to a new 10-month low, the downside risks remained. Comments from Saudi's oil minister and the exemption granted on Iran sanctions lessened concerns over oil shortage. In China, reduction in fuel prices last week would only have limited impacts on refiners. Current price levels of crude oil and softening in inflation have created favorable conditions for the country's fuel price reform.

As the OPEC meeting will be held this week, comments from members in the cartel might give some hints on the output decision. Saudi Arabian Oil Minister Ali al-Naimi said that maybe the OPEC needs to increase the output ceiling to more than 30M bpd. While he stressed later that by using maybe, he meant the ceiling can be raised or lowered, the market interpreted his comment as bearish to oil prices with analysts from the ANZ forecasting a drop of crude price to below 80.

In our weekly report, we mentioned that sanctions over Iran would be a key to the oil price outlook. Weakness in oil prices was also driven by more exemptions given by the US to its allies in sanctioning the Middle East nuclear power. In addition to Japan, over a dozen countries are now exempted from sanctioning Iranian oil. According to a statement released by the White House, important oil importers from Iran such as India, South Korea and Turkey were granted waivers as they significantly reduced their volume of crude oil purchases from Iran.

The National Development and Reform Commission (NDRC) of China over the weekend cut gasoline and diesel prices, by around -5%, for the second time in 2 months. Retail price for gasoline will be reduced by RMB530/tonne while that for diesel will be cut by RMB 510 as international crude oil prices have declined -11% since the last price cut on May 10. The impact on refiners would be limited, at large mildly negative, as retail prices in many service stations have already been discounted. We believe the current market condition is favorable for the government to accelerate the new product pricing reform as oil prices have dropped significantly and inflation has been moderated.