Crude oil price rallied 4.6% to settle at 56.34 Wednesday as gain in crude inventory was less than expected. Today in Asia, the benchmark contract strengthens further and surges to as high as 56.9. As price has pierced meaningful resistance with money continues to flow in, the rally will likely extend further in the near-term, despite the fact that yesterday data was bearish in nature.

Crude inventory added 0.605 mmb less than consensus of 2.5 mmb, to 375.3 mmb as refinery runs rose sharply. Stockpile at Cushing, Oklahoma, was largely flat. However, conditions for both gasoline and distillate were poor after taking a closer look. Although gasoline inventory drew 0.17 mmb, demand plunged surprisingly, in contrast with the expectation that it will improve seasonally, by 2.4% compared with previous 4 weeks. Distillate stockpile soared by a huge 2.42 mmb (consensus: 1 mmb), pushing inventory 40% higher than the same period last year, as demand remained bleak while imports surged.

The current situation in energy market is consistent with what we said on Monday that oversupply in distillate remained an overhang in the market. Low crude oil price (still 60% lower than the peak in 2008) incentivized refiners to convert crude into products. Thus refinery runs increased and helped consuming crude oil. However, the end-market demand for products remained dismal, as shown by distillate demand and inventory data. We are worried that refiners will need to 'get rid of' the excessive distillate at very low prices in order to rebalance the market.

As the market has been forecasting OPEC's output decision on May 28, Khalid al-Falih, CEO of Saudi Aramco, the state company of the world's largest oil exporter, stated that the kingdom was producing less than 8M bpd of crude, less than its OPEC target and the company will increase its production capacity to 12M bpd in a few weeks. Khalid also stressed the need to avoid 'another vicious circle of price spike when growth resumes', indicating that Saudi Arabia does not like seeing oil price moving too high as it may affect economic recovery.

Natural gas extends gains to 3.9 today after rising 7.5% to settle at 3.887 Wednesday, probably boosted by crude's rally and the news that coal and nuke outages during April were larger than expected. The US energy Department will today report gas inventory which is forecast to have increased 92 bcf for the week ended May 1.

Gold price for June delivery soared to settle at 911 Wednesday amid speculations that today's stress test result will indicate a number of banks will need to raise additional capitals. Upside momentum continues today and the precious metal currently trade at 914 ahead of busy economic releases later in European and US sessions.

Treasury Secretary Timothy Geithner, while refusing to disclose the number of banks will need additional capitals, stated that none of the 19 banks examined is at risk of insolvency. He said that 'the result will be, on balance, reassuring' and most of the banks will be able to raise capital 'through private sources' rather than funding from the Government.

Both the BOE and ECB members will meet up for rate decisions today. While the former will keep interest rate unchanged at 0.5%, ECB will probably lower its policy rate by 25 bps to 1%. Concerning quantitative easing policies, BOE Governor Mervyn King is under pressure to decide whether to move to phase 2 of the asset buying program (currently at 75B pounds and can be extended to 150B pounds ) so as to save the nation out of deflation. For ECB, focus is whether the council members will compromise on some non-standard measures. Although the street has been saying that ECB will announce extension of maturity of refinancing instrument to 12 months from 6 months, it's still uncertain if the measures will be announced today, given divergence in opinions among ECB members.