Crude oil price continues to edge lower before the release of US' oil inventory report. Currently trading at 45.11, the benchmark contract has slid 4.2% these 2 days.

Investors turned pessimistic on oil demand after receiving more disappointing economic data and crude oil stockpile is expected to have gained 0.25 mmb last week, despite a better-than-expected inventory report by API.

Released in European morning, Germany's PPI contracted -1.2% mom in January, compared with market expectation of -0.1% and a revised -0.8% in December. On annual basis, the gauge eased to +2% from +4% in the previous month. Moreover, manufacturing orders plummeted 4 times more than consensus, by- 8%, in January from a month ago.

In China, the world's second largest oil consumer, reduced oil import by 13% to 3.12M bpd, for the first 2 months of 2009. Moreover, sharp decline in oil price discouraged many companies in the nation from the exploration business. During the first 2 months in 2009, fixed-asset investment in oil and gas drilling dropped to RMB 10.6B from a year ago.

However, decline in oil price may not be a disaster for everyone. Royal Dutch Shell, the biggest oil company in Europe, as well as its business rivals may gain opportunities to access to oil reserve at good bargains. After making 8 acquisitions in 2008, Shell has planned to deploy over $30B this year oil and gas projects.

Weekly change in inventory as of 06/03/09ActualMarket ExpectationPrevious
Crude oil +0.25 mmb-0.756 mmb
Gasoline -1.00 mmb+0.17 mmb
Distillate +0.20 mmb+1.66 mmb

Comparison between API and EIA reports:

API (Mar 6)
EIA (Mar 6)
Market expectation
Forecast (using API's inventory level)
Crude oil
-0.42 mmb+0.46 mmb345.3 mmb-5.59 mmb345 mmb
+1.65 mmb-0.39 mmb216.5 mmb-0.5 mmb217 mmb
-0.28 mmb+0.02 mmb144.0 mmvunchanged144 mmb

Source: Bloomberg, API, EIA

Gold price rebounds to 902.5 as buying interest emerges below $900/oz. Although recent expectation on inflation eased as the market learnt more about global stimulus plans, we still believe inflationary pressure will build up as more central banks adopt quantitative easing. This will be positive for gold's price movement.