Crude Oil Plunges After Government Data Shows Surprise Inventory Build

September crude oil futures broke sharply on Wednesday after a government report showed a surprise build in weekly crude inventories amid concerns that persistent oversupply will drag down prices.

According to the Energy Information Administration, U.S. commercial crude in storage rose by 1.7 million barrels to a total of 521.1 million barrels in the week through July 22. Traders had been looking for a drawdown of 2.3 million barrels.

Gasoline stockpiles were also up by about a half million barrels, despite a drop in U.S. gasoline production. Distillate oil inventories also decreased, the EIA said.

December Comex Gold futures traded steady to higher as investors awaited the outcome of a two-day Federal Reserve policy meeting that culminates with the release of its latest monetary policy statement at 1800 GMT.

The Fed is widely expected to leave interest rates unchanged, however, investors will be looking for any info as to the timing of the next Fed rate hike. Currently, the CME FedWatch Tool has put a 20.0% probability of a 25 basis point hike in September and a 49.4% probability of a 25 basis point hike in December.

Traders also expect the Fed statement to sound more upbeat about the economy. A hawkish commentary could help trigger a rally in the U.S. Dollar which would pressure dollar-denominated gold.

News that Japan’s Prime Minister Shinzo Abe was preparing to introduce a stimulus package of more than $265 billion to reflate the weakening economy was enough to send the Yen 1 percent lower. Speculators also increased bets the Bank of Japan would announce on Friday a new stimulus plan, aimed at weakening its currency, helped drive the USD/JPY sharply higher, more than erasing yesterday’s steep losses.

The GBP/USD traded lower as investors decided to ignore the better-than-expected U.K. GDP data, choosing instead to focus on the expected rate hike by the Bank of England on August 4.

The U.K.’s Office for National Statistics (ONS) reported the U.K. economy grew by 0.6 percent in the second quarter of the year, quarter-on-quarter, according to the first official estimate out since the country voted to leave the European Union.

The Dow Jones Industrial Average and the S&P 500 Index fell ahead of the Fed statement. Stock prices were also pressured by the steep sell-off in crude oil.

In economic news, overall orders for Durable Goods Orders fell 4.0 percent in June. Non-defense capital goods orders excluding aircraft increased 0.2 percent last month. Traders were looking for readings of minus 1.1% and plus 1.9% respectively. Core Durable Goods Orders were down minus 0.5% versus an estimate of plus 0.3%.

Pending Home Sales rose a far less-than-expected 0.2 percent in June. Traders had priced in a reading of 1.9%.