WTI Crude Oil Recovers Earlier Loss as U.S. Crude Stockpiles Fall Unexpectedly

U.S. West Texas Intermediate Crude Oil futures reversed earlier weakness to recapture the psychological $50.00 level on Wednesday after a surprise decline in U.S. crude inventories. According to the U.S. Energy Information Administration, commercial stockpiles fell by 533,000 barrels in the week-ended October 21. Traders were looking for a 1.7 million barrel build.

The EIA number was well off the preliminary inventory report released on Tuesday by the American Petroleum Institute. Its data showed that U.S. crude stocks rose 4.8 million barrels in the week-ended October 21.

Oil prices rose because the news extended the trend of unforeseen drawdowns seen in U.S. crude stocks in six of the past seven weeks.

The news triggered an intraday short-covering rally that brought December WTI Crude Oil prices up from $48.87 to $50.10. The last price was $49.64, down $0.32 or -0.65%. December Brent Oil was trading $50.32, down $0.47 or -0.94%.

The news was a surprise to traders because many had anticipated a build due to the start of maintenance season. The EIA report also showed refinery crude runs rose by 182,000 barrels per day. Refinery utilization rates increased by 0.6 percentage points.

Crude oil was likely supported by a drop of 2 million barrels in gasoline stocks. Analysts were looking for a 1-million barrel decline. Distillates were also down, falling 3.4 million barrels against the forecast of a 1 million barrel draw.

In addition to the API data, which pressured prices early, crude oil was trading weaker as traders and investors grew less confident that OPEC would be able to follow-through with its plan to limit output. This lack of confidence is being generated by reports that Iran, Nigeria, Libya, Venezuela, Indonesia and perhaps Iraq would be exempted from slashing output.

Forex

December U.S. Dollar Index futures were under pressure due to strength in the British Pound, Euro and New Zealand Dollar. Earlier in the session, the AUD/USD was the leader, however, this market gave back all of its gains. The catalyst behind the early rally was a jump in Australian inflation.

Despite the recent rise in the U.S. Dollar, which probably means traders have priced in the widely expected rate hike by the Fed in December, the Greenback fell against most currency as investors shed long positions ahead of Thursday’s U.S. Durable Goods report and Friday’s U.S. Advance Gap.

Although investors don’t expect the Fed to hike rates at next week’s Federal Open Market Committee meeting, traders may be taking no chances as they appear to be squaring positions ahead of the meeting.