We believe WTI crude oil price will trade within the range of $35-45, lower than $40-50 last week, as investors grew more worried about oil demand in light of weaker economic outlook.

Sharp decline in oil price has led many oil companies to defer their capex spending. Companies such as Occidental, Petro Canada and Murphy Oil expect to reduce capex in 2009 to match cashflow. Although oil giants such as Chevron and Dutch Shell so far made no change to the plan, we believe they may cut budgets in 2010 if oil price falls further. While it's true that, in the long run, supply shortage will be an issue which will cause oil price to rally. However, we do not think this will happen in 2009, especially when oil price lags GDP growth and we are yet to see the bottom of economic downturn.

We expect IEA will revise its forecast on oil demand lower this month after IMF reduced its GDP growth forecast to 0.5%. In Jan 16, IEA projected world oil consumption will fall 0.6% yoy, or 0.5M bpd, to 85.3M bpd in 2009 and the forecast was made assuming GDP will grow by 1.2%. With IMF aggressively lowered GDP forecast to the lowest level after WWII, IEA will very likely take down its oil demand estimates again.

Research found that oil demand from OECD countries has been on the downtrend since late 2005. Concerning N. America, falling demand in the US was offset by growth in Canada and Mexico. Since the second half of 2008, the market started to realize that emerging/non-OECD economies were not decoupled from OECD economies. In fact, oil demand in some fast growing countries, such as China, Thailand and Brazil, have shown consecutive months of declines in oil demand in late-2008.

In the morning report, we have shown that OPEC has reduced oil exports in January. Seeing continuous worsening in global economic outlook, we can tell the organization will cut output further in March or even in 2Q09. However, the output decision will make the OPEC face a dilemma of either increase spare capacity or building up stockpiles.

Gold price plunged to as low as 896.4 in Asian session before recovering to 902.5 as Chinese traders, seeing lower EURUSD, sold their gold position after their new year holidays. Some other news was negative for gold today. Volume of gold jewelry sales in Abu Dhabi declined by 70% in January, the lowest sales since early 2008 as rally in gold price increased buying costs. Demand for gold bar was also down by 50%. However, we view the pullback as an opportunity to accumulate the precious metal.

Investment demand silver was also boosted by safe-haven demand. Last Wednesday, iShares Silver Trust, the world's largest silver-backed ETF, said its bullion holdings increased 1.5%.