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Crude oil slides further due to the dollar's broad-based rally in European morning. The May contract slides to 48.3 while the more- active June contract plunges to 50.5. Failure to break above $55/bbl and subsequent retreat increase the likelihood for the black gold to fall to 45 level again. In fact, we have been saying that the rally in oil price was sentiment-driven and lacked supports from fundamentals

Perhaps in the long run, oil demand will be bolstered by massive stimulus demand worldwide. However, near-term oil market fundamentals remain poor as reflected in demand and inventory in the US. Crude inventory has risen over the last 6 consecutive weeks to 255.7 mmb and days of supply for crude oil stood above 25 days, compared with an average of 21.9 days over the past years. Apart from the US, other OECD countries are not showing better outlooks. According to International Energy Association, OECD stocks rose 7.2% yoy to 2,743 mmb in February and stocks are available to cover 61.6 days of supply, 7.9 days higher than the same period in 2008 as led by upward revision to January inventories, increasing February stocks and weaker forward demand.

While market's focus has been shifted to non-OECD countries, the latest report showed that total oil product demand in China, the world's second largest oil consumer, is significantly below 2008's level. China reported GDP growth of 6.1% in 1Q09 last week. Although it marked the lowest growth in a decade, government officials remained confident about the nation's economic outlook and pointed out that the RMB 4 trillion stimulus plan has so far generated better-than-expected result.

Added to the bullishness is China's bank lending growth has soared 200% during the period of December 2008 to February 2009 which likely translate to higher demand in raw materials in coming months. However, we would like to hold cautious views in China's recovery and worry about its economic growth in 2H09 as growth in industries that received government supports (mainly infrastructural sectors) may not be able to offset downturns in other sectors such as manufacturing and mining which contributed a great proportion of the nation's GDP.

Despite a mild recovery to 873, gold price for June delivery remains vulnerable as the dollar rallies and investment demand reduces. The dollar index surges to 86.5 in European morning. Against euro and the pound, USD rallies to 1.297 and 1.46 respectively. Gold holdings in the SPDR Gold Trust fell for a second day to 1105.98 metric tons on April 17, the lowest since March 19.

Concerning physical demand, Indian gold bullion imports for the first half of April amounted to 10 metric tons, following zero imports in March Although it's still below five-year average of 60 metric tons/ month, the increase indicates modest recovery and we believe the momentum will pick up further as festive season in India is coming.