Crude Oil Tumbles on Larger-than-Expected Inventory Build

Crude oil futures tumbled further on Wednesday, following the release of a government report that showed stockpiles increased greater than expected. Earlier in the session, the market was pressured by a stronger U.S. Dollar and late Tuesday’s American Petroleum Institute’s weekly report that showed a high inventory.

U.S. Energy Information Administration (EIA) data for the week-ending August 26, showed inventories rose by 2.3 million barrels to a total of 525.9 million barrels. Experts were looking for an increase of slightly more than 900,000 barrels. ‘

Analysts blamed the larger-than-expected crude oil build on refiners who turned out less gasoline. The EIA reported that production fell to 9.51 million barrels per day in the latest week, versus 9.66 million barrels per day in the previous week.

Also supporting the sell-off in crude oil was the news that gasoline stocks fell by 691,000 barrels. Analysts were looking for a 1.2 million barrel drop.

Another bearish factor was an increase in distillate stockpiles, which rose by 1.5 million barrels, versus expectations for a 157,000-barrel decline.

The U.S. Dollar posted a gain against most major currencies on Wednesday after data revealed that private sector job gains in August were slightly better-than-expectations. However, gains were limited by a weaker-than-expected manufacturing report.

The Greenback rally was triggered by the ADP Non-Farm Payrolls report that showed the private sector added 177K jobs in August. Traders were looking for an increase of 175K jobs. Private payroll gains in July were revised up to 194,000 from 179,000.

The dollar’s gains were paired by a drop in Chicago PMI to 51.5. Economists were looking for a reading of 54.1. Pending home sales, however, increased by 1.3%, beating the 0.7% estimate and stabilizing the market.

The EUR/USD remained under pressure throughout the session, falling to 1.1125 before rebounding to 1.1131. Weak Euro Zone inflation data weighed on prices, while raising speculation that aggressive fiscal moves may have to be made if monetary policy actions can’t revive the economy.

The GBP/USD turned around after an early set-back to move up to 1.3158. The low for the session was 1.3079. Speculators are starting to increase bets that the Bank of England will pass on an interest rate cut at its next meeting on September 15.

December Comex Gold futures were under pressure on most of the session as investors reacted to the stronger U.S. Dollar and on concerns the U.S. economy may have strengthened enough to raise interest rates as early as September. According to the CME’s Fed Funds indicator, traders have raised the chances of an early rate hike from 18% last Friday to 25% on Wednesday.