Crude oil price recovers to above 71 as the market awaits the inventory report from the US Energy Department. Investors probably anticipate some pleasant surprises after American Petroleum Institute (API) showed large decline in crude stockpiles.

Economic data released in the Eurozone also helped sentiment. Reports showed that manufacturing PMI in the 16-nation region was revised up to 42.6 from 42.4 in June while trading for Germany was also lifted to 40.9 from 40.5. In the UK, manufacturing PMI in June improved to 47, better than consensus of 46 and 45.4 in May. Stocks rally in European morning with UK's FTSE 100 Index gaining 1.45% to 4311. Germany's DAX and France's CAC 40 also climb 1.43% and 1.63% to 4878 and 3192 respectively.

Iraq had the first bidding round of oil contracts after the US-led coalition forces invasion in 2003. However, to the disappointment of both the Iraqi government and international oil companies, only 1 out of the 6 giant producing oil fields and 2 producing gas fields, effectively involved 20-year service contracts, was awarded. It's because the remuneration fee bid was in excess of the maximum remuneration fee set by the government.

The only license awarded was the Rumaila Field by a JV formed by BP Plc and China National Petroleum Corp (CNPC) who eventually accepted a remuneration level from about half that of the initial bid in exchange of potential first mover advantage in the country with potential huge unexplored reserves.

News said that the BP JV initially offered a net margin of $3.99/bbl, compared with $ 4.8/bbl from its closest competitor Exxon. However, the government would only accept offers up to $2/bbl. We believe the BP JV finally accepted the 'squeeze' for getting the contract. Moreover, it's also reported that production will be increased to 2.8M bpd from initial estimate of 1.85M bpd.

Comments from bidders were that the government tried to squeeze the margin but to the extent unacceptable for oil companies. The table shows the deviations of both parties. Iraq will hold a second round of auction for 11 oil and gas fields later this year, aiming to boost production to about 6M bpd by 2015. According to OPEC's monthly report, Iraq produces more than 2.3M bpd of crude oil in the first 5 months of 2009. In 2007 and 2008, oil production was 2.09M bpd and 2.34M bpd, respectively.

Opportunity to gain access to Iraq's oil industry has been long-awaited as the nation has huge oil reserves and potentially unexplored areas. Production costs are relatively low. However, risks are also high as Iraq is country which is politically unstable and the legal system was not secure. Corruption is another problem. According to Transparency International's 2008 Corruption Perception Index, Iraq ranked 178 out of 180 countries in terms of perceived level of corruption. According to the US and United Nations, Iraq still lacks a well-established regime to prevent and fight against corruption.

Gold price edges higher to 930.5 after plummeting to as low as 922.7 yesterday. Although rise in crude oil and ease in dollar's rally help support the precious metal, near-term outlook is still uncertain. Investment demand also remains weak. SPDR Gold Trust reported a decline of 5.2 metric tons in bullion holdings yesterday.