Crude oil plunged as Wall Street declined after disappointing economic data, temporary lift of drilling ban and surge in inventory. Moreover, banking problems in the Eurozone reignited worries over growth outlook and oil demand. WTI crude oil price reversed gains after rising to as high as 78.9. The front-month contract settled flat at 77.85. Price edges lower in Asian session today. Brent crude dropped -0.93% and ended that day at 78.47. The contract had broken above 80 on June 21.

Gold slipped to as low as 1233 before recovery. The benchmark contract closed at 1240.8, largely unchanged from Tuesday's close. In china, gold prices on the Shanghai exchange settled slightly higher that world gold prices. This indicates that dealers in China do not expect much appreciation of RMB in the near futures and/or that RMB appreciation does not have much impact on gold.

US stocks tumbled as existing home surprisingly plummeted -1.91% to 5.66M in June. The market had anticipated an increase to 6.2M. Richmond Fed survey dipped modestly. DJIA and S&P 500 dropped -1.4% and -1.6% respectively.

Decline in US bourses was also driven events happened in the Eurozone. There have been more evidences unveiling weakness in European banking system. Credit Agricole SA said yesterday it would take a 400M euro write-down on its stake in Emporiki Bank of Greece SA. Emporiki's after-tax losses may reach about 750M euro in 2010, more than twice of October's projection. S&P Ratings said in a report on Monday that it lowered Spain's economic growth forecast to an average +0.7% a year through 2016, compared with previous forecast of +1%, and said that most of the banks in the country have negative outlooks, 'reflecting the possibility that loan and operating performance may worsen more than we currently expect in a tough economic environment'. These events, together with Fitch's downgrade of BNP Paribas, again raised concerns about crisis in the Eurozone.

The UK government delivered an aggressive emergency Budget yesterday. Through spending cut and tax hike, Chancellor of the Exchequer George Osborne the country's public sector net borrowing (PSNB) will reduce to 20B pound (1.1% of GDP) in 2015/16 from 149B pound (10.1% of GDP) this year while the structural deficit will be eliminated in 2015/16. The austerity measures however will result in lower GDP growth. The government forecasts growth to reach +1.2% and +2.3%, respectively. The pound surged and the UK bond yields slid after the report. Rating agencies are supportive of the Budget. According to Fitch Ratings, the Budget 'sets out an ambitious deficit reduction path that, if delivered upon, will materially strengthen confidence in UK public finances and its 'AAA' status'. However, equities were pressured as higher tax and low spending might hurt company profits.

A New Orleans federal court lifted the 6-month moratorium on deepwater drilling imposed by President Barack Obama, saying the suspension has overstepped the President's authority. There's still possibility of production impacts as the government said it would appeal the decision.

The US Energy Department will report its weekly oil inventory data later today. The market currently expects decline in both crude and gasoline stockpiles and increase in distillate stockpile. However, API's report released after market close yesterday showed rises in all of them.

Weekly change in inventory as of 18/06/10
Change
Market Expectation
Previous

Crude oil
 
-0.80 mmb
+1.69 mmb

Gasoline
 
-0.10 mmb
-0.64 mmb

Distillate
 
+1.30 mmb
+1.80 mmb

Comparison between API and EIA reports:

API (Jun 18)

EIA (Jun 18 )

Actual
Inventory
Previous

Forecast (using API's inventory level)
Inventory

Crude oil
+3.69 mmb
362.5 mmb
+0.58 mmb

-0.61 mmb
363 mmb

Gasoline
+0.81 mmb
221.1 mmb
+1.30 mmb

+2.66 mmb
221 mmb

Distillate
+1.10 mmb
154.7 mmb
+2.10 mmb

-1.62 mmb
155 mmb

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

Source: Bloomberg, API, EIA