Crude Oil Inches Toward $50 on Unexpectedly Large Inventory Drawdown

July crude oil futures inched towards the psychological $50.00 level on Wednesday, driven by an unexpectedly large inventory drawdown as reported by the American Petroleum Institute late Tuesday. The API reported crude inventories fell by 5.1 million barrels, compared with expectations for a 2.5 million barrel decline.

On Wednesday, the U.S. Energy Information Administration reported that U.S. commercial crude stockpiles fell by 4.2 million barrels to a total of 537.1 million in the week through May 20. Traders were looking for a 1.7 million barrel draw down. Total motor gasoline stocks rose by 2 million barrels, while distillate fuel oils fell by 1.3 million barrels, the EIA said.

The EIA also said that oil production ticked lower once again.

In economic news, the Markit Flash U.S. services PMI for May was 51.2, down from 52.8 in April and well below the long-run survey average of 55.6. The U.S. advance April goods trade deficit was $57.33 billion, the U.S. Department of Commerce said.

In other economic news, the Federal Housing Finance Agency House Price Index rose 0.7 percent in March from the prior month. Total mortgage application volume increased 2.3 percent for the week on a seasonally adjusted basis, a nearly 24 percent rise year-over-year, according to the Mortgage Bankers Association.

The weaker than expected Services PMI data was enough to turn the U.S. Dollar Index lower. This may help to underpin oil and gold prices today.

August Comex Gold declined to a seven-week low, driven lower by expectations of a Fed rate hike in June, a stronger U.S. Dollar and greater demand for higher-yielding assets like stock.

The EUR/USD also traded slightly lower on Wednesday. There was limited reaction to reports showing better-than-expected results from Germany. GfK German Consumer Climate for June came in at 9.8, besting its 9.7 estimate. German Business Expectations for May were 101.6, better than the 100.8 forecast. German Current Assessment for May came in at 114.2, higher than the 113.2 estimate. German IFO Business Climate Index for May was 107.7, beating the 106.8 forecast.

Traders also failed to respond to the news that Euro Zone finance ministers agreed with Greece and the International Monetary Fund (IMF) on what they called a “breakthrough” deal that will address Athens’ requests for debt relief.

Late Wednesday, the Eurogroup ministers agreed to release 10.3 billion Euros ($11.42 billion) for Greece after Athens agreed to a package of painful austerity and reform measures over the weekend.

The GBP/USD also firmed as investors continued to increase bets that the U.K. would vote to remain a member of the European Union.

The markets could turn volatile later in the session driven by comments from Fed members Kashkari and Kaplan. Investors will be listening for more information as to the timing of the next Fed rate hike.