Possibility of Greece's exit from the Eurozone and downgrades of the banking system in other peripheral economies have clouded the financial markets over the past week. While the preliminary data showed that the 17-nation region recorded better-than-expected GDP growth in the first quarter, the details indicated that growth was only confined in a few countries while some peripheries have fallen into recession. Macroeconomic indicators in the US showed some disappointments, raising the possibilities of further Fed easing. In the commodity sector, crude oil prices declined with the WTI contract for June delivery plummeting for a third consecutive week to 90.93, the lowest level since October 2011, before settling at 91.48, down -4.84% during the week. The equivalent Brent crude contract plunged -4.56% to end the week at 107.14. Gold was pressured for most of the week before a strong rebound in place on Thursday. A more dovish than anticipated FOMC minutes fueled speculations of QE3 and sent the US dollar lower, hence boosted the yellow metal.

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Crude Oil: Both WTI and Brent crude oil have over the past weeks fallen to the lowest levels since December 2011. The main concern for recent price actions is that whether the decline will continue and until when. Indeed, it is reasonable to anticipate further weakness will be seen as long as the uncertainty in the Eurozone remains. Global stock markets are expected to be further weighed down by rising contagion risks in the Eurozone. Given the correlation between stocks and oil prices, the latter should remain vulnerable to further decline.

The OPEC, a cartel holding 40% of the world's oil, has claimed that it would increase output to bring down oil prices. However, whether the cartel would succeed in doing so remains debatable. While Saudi Oil Minister Ali al-Naimi said last week that the country has to get the price to a level of around $100 for Brent, the founder of Husseini Energy, stated that the $100 for Brent is quite a correction and it will be a challenge to sustain such a low price beyond the short term.

Indeed, for most of the oil producing economies, a further decline in oil price would still be able to sustain growth. Deutsche Bank estimated that the GCC would not anticipate fiscal stress across until Brent crude oil falls below $86.5/bbl while the price for Saudi would be $91.9/bbl. Compared with Friday's close of 107.14 the buffer is around 15-20%.

Natural Gas: Natural gas gained another 3% last week. The DOE/EIA reported that gas inventory increased +61 bcf to 2 667 bcf in the week ended May 11. Stocks were +774 bcf above the same period last year and +773 bcf, or +40.8%, above the 5-year average of 1 894 bcf. Separately, Baker Hughes reported that the number of gas rigs added +2 units to 600 in the week ended May 18. Oil rigs increased +10 units to 1 382 and miscellaneous rigs stayed unchanged at 4 units, sending the total number of rigs to 1 986 units. Directionally oriented combined oil, gas, and miscellaneous rigs slid -1 units to 227 while horizontal rigs increased +6 units to 1 193 and vertical rigs gained +7 units to 566 during the week.

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Precious Metals: The FOMC released the minutes for the April meeting. Policymakers acknowledged improvements in economic growth but these remained insufficient to change its current accommodative policy stance. While there was slight change in language from the previous meeting, it appeared that the central bank turned mildly more dovish. Overall, the Fed continued to pledge that it would do more if the economy deteriorates further. Meanwhile, some disappointing economic data released during the week also triggered hopes of further monetary easing. The Philly Fed Index surprisingly declined to -5.8 in May from 8.5 a month ago. The market had anticipated a rise to 12. Leading indicators contracted -0.1% in April, following a +0.3% gain in the prior month. It is likely that the Fed would implement measures to stimulate and the appropriate timing is after expiration of the operation twist in June. We believe that increased speculations of QE3 have sent the US dollar lower and gold higher.