Massive selloff was seen in the energy complex with natural gas and RBOB gasoline being the worst performers. Natural gas sank -5.9% to 4.29 while gasoline slid -4.1% to 1.99 amid huge inventory builds. WTI and Brent crude oil plunged -2.6% to 77.46 and 75.86 respectively while heating oil dropped -2.8% to 2.

The US oil inventory report was overall neutral but investors were disappointed by the large increase in gasoline stockpile (+1.62 mmb). Imports rose +0.11M bpd to 0.76M bpd following a sharp decline in previous weeks while demand dropped -1% to 8.858M bpd. This was the 3rd consecutive weekly decline and gasoline consumption will remain constrained in the shoulder season. Simple yield (production/gross refinery input) climbed +2.1% to 62.2% last week and further upside will be seen in coming weeks as refiners try to produce more gasoline but less distillate.

Distillate inventory declined -2.13 mmb as +0.15M bpd increase in demand offset the milder increase in imports. However, the current demand level at 3.64M bpd remained weak. We hope colder weather and early winter in the Northeast will help boost demand in coming weeks.

USD and yen firmed against major currencies as stock markets slumped after receiving disappointing economic data. US new home sales slipped -3.6% mom to 402K in September while MBA mortgage applications plummeted for the 3rd consecutive week, by -12.3%, to 562.3K in the week ended October 23. The dollar strengthened against the euro and commodity currencies.

AUSUSD dropped -2% as Australia's CPI missed market expectation and its unlikely that the RBA will implement large increase in its policy rate in coming months. NZDUSD slid -2.9% as the RBNZ left its OCR unchanged at 2.5% and stated that there's 'no urgency to begin withdrawing monetary policy stimulus, and we expect to keep the OCR at the current level until the second half of 2010'.

The market seems to be more nervous about economic recovery and risk aversion has increased in recent days. The VIX index has surged to 27.91, +35% from the low made on October 22. This was the highest level since October 2.

Gold price fell to as low as 1026.9 ($1.1 above 1025.8 - Sep 17's resistance-turned-support) before buying interest emerged. The benchmark contract settled at 1019.9, losing -0.5% for the day. Others in the precious metal complex also dropped with silver slumping -1.8% to 16.23 and platinum losing -0.9% to 1306.9.