CRUDE OUTLOOK

Despite modest recovery in European session, renewed selling pressure after the US Energy Department' inventory report sent energy prices to lowest levels in 2 months. WTI crude oil price plunged -2.7% to 70.67 while Brent crude tumbled -3.7% to close at 72.39. For fuel prices, heating oil dived almost -4% to 1.9121 while RBOB gasoline was down -3.55 to 1.8573.

Although crude inventory declined more than market expectations, huge builds in gasoline and distillate stockpiles fueled worries about demand outlook.

The -3.8 mmb decline in crude inventory was mainly due to draws in the Gulf Coast. However, the huge increase in the Midwest highlighted by Cushing stockbuilds suggested spreads between WTI and Brent crude price will continue widening in coming weeks.

The more disappointing news came from surge in gasoline and distillate stockpiles. Demands remained weak with 4-week average of total US fuel demand dropping -3% yoy to 18.5mmb last week.

Precious metals also slumped amid USD' strength. Comex gold fell for the second day to 1128.8. In these 2 days, the benchmark contract lost -3%. Since the peak made on December 3, price have erased -8% of the gains made these few months.

Silver underperformed gold in the current decline. Futures for the white metal has dropped for 5 consecutive days after making a 17-month high at 19.5 on in early December. The front-month contract has corrected by more than -10%. Worries about global economic recovery weigh on demand for silver. As silver has wide-ranged applications in industrial process, contraction or sluggish growth in industrial/manufacturing activities weakened consumption for silver.

European stock markets were hit hard after the S&P lowered Spain' debt outlook to 'negative' from 'stable' as the country will have 'more pronounced and persistent deterioration' in its budget and a 'more prolonged period of economic weakness' that what was anticipated in beginning of the year. The news came a day after Fitch Ratings' downgrade of Greece' rating.

Another issue was the UK' pre-budget report which showed that deficit will continue to increase while economic contraction this year will be more serious than previously anticipated.

According to the report, the deficits for both this fiscal year and next revised up 3B pound to 178B pound and 176 B pound respectively. The gross debt to GDP ratio is forecast to reach 91.6% in 2013-14, modestly increased from the 90.7% ratio for that year forecast in the 2009 Budget. A more astonishing measure was imposition of an additional 50% one-off tax on bank bonuses above 25k pound. A total of 550M pound will be raised by the measure but the amount was rather insignificant.

On the other hand, US stocks rose, probably because mortgage applications and the wholesale trade numbers improved. Wholesale inventories rose +0.3% in October, following a -0.9% decline a month ago.

The RBNZ, as expected, announced to leave the OCR unchanged at 2.5%. However, the accompanying statement showed a more hawkish tone than before as Governor Alan Bollard said that he expected rate hike to begin around the middle of 2010. In October, policymakers pledged to keep the current interest rate unchanged 'until the second half of 2010'.