Oil price dropped -0.8% to close at 68.67 Wednesday, as disappointing US inventory data and weak crude imports to Japan suggested bleak fundamentals in the energy market. USD's rally after the Fed statement added more pressure on the commodity market. Natural gas, RBOB gasoline and heating oil slid -3%, -2.7% and -1.7%, respectively. Currently trading at 68.83, the benchmark contract likely continues hovering below 70 today.

Crude oil inventory dropped -3.87 mmb as increase in refinery runs offset rise in imports. Refinery products saw another week of huge inventory gains. Gasoline stockpiles rose 3.87 mmb as demand declined by 0.23 mmb (-2.4%) to 3.13 mmb and refinery output increased. As usual, distillate stocks built for another week on rises in refinery runs and imports.

Refinery utilization rose to 87.1%, +1.2% from the prior week and +5.2% from a month ago as refiners found incentives from the big spread between gasoline and crude oil price. However, recent sharp decline in gasoline price should have diminished the incentives.

Adding to the downside pressure was a -18.8% yoy decline in Japanese crude imports in May.

Natural gas storage is expected to have increased 100 bcf to 2657 bcf in the week ended June 19. Weak demand, mild weather and economic recession have been major factors causing the large inventory builds.

At June's FOMC meeting, the Fed announced to keep its policy rate low at 0-0.25% at an extend period of time and maintain the current $1.75 trillion asset purchase program. Moreover, policymakers revealed more hawkish view on the economic outlook and upgraded growth and inflation forecasts of 2H09 with details to be released next month.

In the accompanying statement, the Fed said that 'the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales'. Concerning inflation, the Fed continued to anticipate that inflation will 'remain subdued for some time' though 'the prices of energy and other commodities have risen'.

The dollar rallied against major currencies after the statement. Against the euro USD rose +1.1% to close at 1.393 Wednesday. The dollar index rebounded to close above 80 again after plunging to as low as 79.9.

Gold price surged to 1-week high at 944.4 ahead of the Fed statement on bargain hunting. However, price retreated as investors were still disappointed by the Fed's inflation outlook as it stated 'substantial resource slack is likely to dampen cost pressures'. The precious metal for August delivery settled +1.1% higher at 934.4. Others in the complex also edged higher with silver and platinum gained +0.5% and +0.2%, respectively.

We believe the Fed's inflation outlook has actually improved from April's meeting as the phrase,' the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term', which appeared in April's statement was dropped, signaling the Fed has become less worried about deflation.