USD's movement continues to affect commodity prices and the greenback's pullback after Dmitry Medvedev, Russia's President, reiterated his intention to push for the creation of a 'supranational currency' to replace USD. Crude oil price recovers in European morning to above 71 level again.

At a meeting with other central Asian countries, Medvedev said that 'there can be no successful global currency system if the financial instruments that are used are denominated in only one currency...today this is the case and the currency is the dollar.' Selloff in USD was triggered after the president stated his worries last week but Russia's finance minister eased the decline by saying the dollar is in 'good shape'. While comments from the 2 leaders in Russia seem to be contradicting, Medvedev's top economic aide Arkady Dvorkovich stated that the nation is united on the dollar policy and believes 'in long term, it's beneficial for all and all agree that the world needs a few strong currencies but it cannot happen quickly'.

Another important issue at the meeting is that China offered to provide $10B loans to help member states of the Shanghai Cooperation Organization (SCO) survive financial crisis. SCO member states include China, Russia and the 4 Soviet republics of Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.

Precious metals' declines stabilize as the dollar loses ground. The benchmark contract for gold edges higher to 934 while that for silver adds 22 cents to14.25.

News said that China may raise ex-refinery gate prices for gasoline and distillate products later end of this month as international crude oil price has surged rapidly. If that's the case, it will be the second time in a month that the National Development and Reform Commission (NDRC) increased prices on oil products. On June 1, NDRC increased domestic gasoline and diesel prices by +7% and +8%, respectively.

Unlike countries in the advanced economy, prices for oil products in China is under government's control in order to make sure that consumers with low affordability can also buy oil products. However, such control has squeezed refinery margins on refiners for years

In early May, NDRC unveiled more details about the new oil pricing mechanism introduced in the beginning of 2009. Under the new policy, NDRC may adjust domestic oil product prices when the moving average of 'international crude oil prices' (Brent, Dubai and Cinta) change more than 4% of a period of 22 working days.

One problem is that while NDRC has tried to adhere closely to the new mechanism, the State Council has the final say and this makes the pricing regime remain to be quite political. The last price hike before June was on March 25 when the government increased ex refinery price of gasoline and diesel by +5.3% (+RMB 290/ton) and +3.7% (+RMB 180/ton) respectively. In fact, another price hike should have been warranted in April but the State Council rejected it as the reaction after March's raise was rigorous, mostly on the negative side, as newspaper always compared domestic product prices (including fuel consumption tax and 17% VAT) with prices in the US where taxes are low or tax-free product prices in Singapore. This created a perception that oil products in China were more expensive.

The price hike in early June in fact came in later and smaller than expected as the gasoline and diesel prices were risen by RMB400/ton, compared with RMB 750-800/ton suggested by 'international oil prices' at that time. The next cut-off day for China's pricing mechanism is June 26. By that time, 'international oil prices' may reach USD67/bbl, higher than the 4% fluctuation and should be justified for another price hike.

If you are investing in Chinese stocks, Sinopec (0386.HK) should benefit the most from the move given its biggest exposure to refining in China. As of 1Q09, refinery business contributed 44% (RMB 7.3B) of the company's operating profit with the rest of the business in E&P, marketing and distribution, and chemicals.