Crude Oil Spikes Higher on Bullish EIA Data

U.S. West Texas Intermediate Crude Oil futures spiked higher on Wednesday following the release of a government report that showed a large drop in U.S. crude inventories and as an oil services workers strike in Norway threatened to reduce North Sea production. Some investors called the oil drawdown a surprise, but traders were looking for it ever since the American Petroleum Institute inventory report showed a drawdown late Tuesday.

According to the U.S. Energy Administration, U.S. commercial crude inventories fell by 6.2 million barrels to a total of 504.6 million barrels in the week-ending September 16. Traders had forecast an increase of 3.4 million barrels based on surveys conducted by Reuters.

The 3.4 million barrel guess was ignored by some because late Tuesday, the API reported a 7.5 million draw in U.S. crude oil supplies, instead of the build that many expected.

The EIA also reported that gasoline stocks fell by 3.2 million barrels. Analysts and traders were looking for a 567,000 barrel decline. Distillate stockpiles continued to trend higher, rising by 2.2 million barrels versus a 250,000 barrel increase estimate.

November WTI Crude Oil was last reported at $45.05, up 1.00 or +2.27%.

December Comex Gold futures posted a two-sided reaction on Wednesday, moving to $1330.00, up $11.80 or 0.90%. The volatile reaction was fueled by the Bank of Japan’s decision to overall its monetary policy and position-squaring ahead of the U.S. Federal Reserve’s interest rate decision at 1600 GMT and Fed Chair Janet Yellen’s press conference at 1630 GMT.

The Fed is widely expected to leave its benchmark interest rate unchanged while issuing a hawkish monetary policy statement. Yellen could move the gold market lower if she warns investors that they should start preparing of a December rate hike.

The BOJ’s change in policy helped drive the British Pound and Euro lower on Wednesday as the move drove up demand for higher yielding assets. Since the Euro is a funding currency now that the Euro Zone has adopted a negative interest rate strategy, the EUR/USD weakened when U.S. stocks rallied.

As a funding currency, investors borrow at Euro Zone banks then sell the Euro to buy the U.S. Dollars needed to invest in U.S. equity markets. The GP/USD weakened on growing expectations of a weakening economy.

Both the EUR/USD and GBP/USD could feel additional pressure if there is a surprise rate hike by the Fed. However, this event is very unlikely. However, the Forex pairs could still feel downside pressure if the Fed’s monetary policy statement or Janet Yellen come off as hawkish or build a strong case for a December rate hike.