Whether Greece will leave the Eurozone continued to be the main topic of the week and given the lack of the concrete measures decided in the informal EU summit to handle the crisis, financial markets remained under pressure. In the commodity sector, crude oil prices declined for the fourth consecutive week amid the focus on macroeconomic factors while fundamental and geopolitical issues took a back seat. Gold was also weighed down as the yellow metal moved more inline with the diving euro than as a safe haven asset in recent weeks.

The informal EU summit ended with no concrete resolutions to deal with the sovereign debt crisis in the region. While it has become certain than the majority of leaders prefer Greece to stay in the 17-nation bloc, there's no measures to handle the radical leftists' demand for abandoning the austerity measures The EU leaders pledged to stimulate growth and stated that member states would endeavor to bolster growth around the three pillars: mobilization of EU policies to fully support growth, acceleration of efforts to finance the economy through investments and strengthening job-creation. Yet, details of the growth plan were no change from those announced earlier in the week, with key measures being introduction of project bonds as a pilot scheme with 230M euro being allocated to the scheme, expansion of the European Investment Bank (EIB) capital and mobilization of European structural funds.

The next major events regarding the issue would be the ECB meeting in June, followed by the Greece election on June 17 and the G-20 meeting on June 18-19. We believe market volatility will continue to be great before and after these events.


Crude Oil: The front-month contracts for WTI and Brent crude oil have declined for four straight weeks, sending the former below 100 and approaching 90 while the latter below 110 for the first time in 2012. The recent correction in crude prices has been driven by weakening macroeconomic sentiment as EU leaders appeared to lack resolutions to address the Greek issue.

Negotiation between Iran and The P5+1 group ended on Friday. While the IAEA report stated that the Middle East country and the six world powers have reached some common grounds and Iran agreed to address its 20% uranium enrichment program, an anonymous Iranian official described the meeting as a complete failure. The next round of talks is set for mid-June in Moscow. Yet, the market has largely ignored developments of the issue as the focus has been put on Greece.

Natural Gas: The DOE/EIA reported that gas inventory increased +77 bcf to 2 667 bcf in the week ended May 11. Stocks were +750 bcf above the same period last year and +753 bcf, or +37.8%, above the 5-year average of 1 991 bcf.

Separately, Baker Hughes reported that the number of gas rigs dropped -6 units to 594 in the week ended May 24. Oil rigs increased +1 unit to 1 383 and miscellaneous rigs added 2 units 6 and the the total number of rigs was down to 1 983 units. Directionally oriented combined oil, gas, and miscellaneous rigs slid -5 units to 222 while horizontal rigs decreased -2 units to 1 191 and vertical rigs gained +4 units to 570 during the week.



Precious Metals: The complex continued to undergo correction as political uncertainty in the Eurozone remained. Gold price dropped, reversing the short-covering rebound in the prior week, as the US dollar strengthened. In the near-term, gold, as well as other precious metals, is expected to be pressured as the euro tumbles.

For the yellow metal to turn more positive, physical demand is the key. Indeed, sovereign buying has remained robust despite the recent turmoil, signaling official sectors' confidence in gold positive. For physical ETF, holdings have stayed positive despite recent softness. However, retail purchases of the metal in Asia, especially China and India, have shown fatigue.

PGM prices fell with benchmark contracts for both platinum and palladium losing more than -2.05 last week. Investment demand was weak, sending prices lower despite renewed labor strike in South Africa. According to the latest forecasts from Johnson Matheson, platinum will remain in surplus in 2012 palladium will turn into deficit due to reduction in Russian state stock supplies, rise in auto-catalyst demand and robust ETF investment.