WTI crude oil for September delivery slumped to as low as 62.7 before closing at 63.35, -5.8%, Wednesday as the US Energy Department reported huge increase in crude supply last week. Moreover, CFTC's tightening regulatory oversights of US futures markets (especially the energy markets) should curtail investment demand. Many investors used this as the reason to sell down the black gold. Others in the energy complex also plunged. Gasoline dropped -2.9% to 1.86 while heating oil lost -5.3% to 1.67. Natural gas sank further by -4.4% to 3.38. Today in Asia, black gold's selloff has stabilized, However, decline will resume after consolidation as recent rally should have ended at 68.99 3 days ago.

US crude oil inventory surged +5.1 mmb last week, compared with market expectation of modest decline. The halt to the 7-week draw was due to decline in refinery runs which was down -0.171M bpd to 14.61M bpd, as sluggish demand and rising inventory discouraged production. We expect further increase in crude inventory in coming weeks as more refineries go into maintenance.

The spread between WTI and Brent crude oil widened (WTI trading at greater discount) after the report , particularly when Cushing stock, where WTI crude is stored, gained +1.3 mmb last week.

As expected, distillate stockpile surged while demand plunged (-4week average: -21% yoy). We expect demand will remain weak during summer while modest improvement will be seen as we enter winter. Although surprising decline in gasoline inventory provided the only supportive highlight of the report, we doubt if it's sustainable. As half of the peak driving season has been in the rear mirror, we believe further meaningful draw is not likely.

After the second CFTC hearing on imposition of tighter restrictions so as to curb speculations, it should be clear that stricter positions limits will be adopted. According to the CFTC Chairman, Gary Gensler, the question is 'how' rather than 'whether' to establish new limits. No matter how the measures are to be adopted, it can be resulted in reductions in investment demands.

The precious metal complex slid with gold and silver plunging -1.3% and -3.5% to 927.2 and 13.26, respectively. Disappointing economic data released in the US drove investors back to safe asset and USD rebounded.
Durable goods orders plunged -2.5% in June, compared with consensus of -0.5%, after a rise of +1.3% in the previous month. The disappointment came from the transportation component. Excluding this, the gauge rose +1.1% following a gain of +0.8% in May. The dollar index surged to 79.63, the highest level in 2 weeks while USD rose to 1.4, the highest since July 15, against the euro.

The market also reacted to the news that a senior IMF official said a planned sales of 400 tons of IMF gold would take place with a new central bank gold sales agreement now being negotiated. However, this should not have much impact on the gold price. First this is not new news as IMF's gold sales first came out in April. Moreover, should the sales actually take place, it will be done in a gradual pace so as not to disturb price movement.