Crude Spikes Higher after API Report Shows Bigger-than-Expected Draw

Crude oil futures closed sharply higher on Tuesday after reversing earlier losses. Following a steady opening, the market fell sharply as investors reacted to negative reports from several bank including BNP Paribas, Barclays and Goldman Sachs. Late in the session, oil prices spiked higher after an industry report showed a greater than expected decline in inventory.

BNP Paribas slashed its forecasts for Brent by $9 to $51 a barrel for 2017 and by $15 to $48 for 2018.  Barclays also cut its 2017 and 2018 Brent forecasts to $52 a barrel for both years from $55 and $57 respectively.

Goldman Sachs added that without a significant drop in oil inventories or a decline in U.S. drilling and production. The bank said U.S. crude could drop below $40 per barrel.

After the close on Tuesday, the American Petroleum Institute reported U.S. crude stockpiles declined by 8.1 million barrel for the week-ended July 7. Gasoline stocks also fell by about 800,000 barrels, the API reported.

Gold

After hovering near its 4-month low most of the session, August Comex gold futures rallied into the close in reaction to a steep drop in the U.S. Dollar. Gold was also supported by flight-to-safety buying after U.S. President Donald Trump’s eldest son released an email chain citing Russian support for his father before last year’s U.S. election.

Forex

The Dollar fell against a basket of currencies on Tuesday, after the emails released by Trump, Jr. showed a Russian prosecutor was offering his father’s presidential campaign incriminating information about Democratic rival Hillary Clinton as part of Russian government support.

The USD/JPY rallied to a four-month high against the Japanese Yen early in the session, helped by the recent rise in U.S. government bond yields. The news about Trump also sent the EUR/USD to a 14-month high.

The NZD/USD spiked lower on rising U.S. Treasury reports, soft commodity prices and a disappointing report on domestic credit card spending.

The USD/CAD also picked up a little strength ahead of Wednesday’s Bank of Canada interest rate decision. Traders are split 50/50 as to whether the central bank will raise interest rates at this month’s monetary policy meeting, or wait until late summer or early fall.

U.S. Equities

The major U.S. equity markets closed mixed on Tuesday. Stocks went on a wild ride, plunging to their lows for the day after Trump, Jr. released the email chain, raising concerns the Russia controversy that’s plagued President Donald Trump’s presidency will worsen.

Fed and Economic News

In Fed news, Minneapolis Fed President Neel Kashkari said separately that U.S. banks are still too big to fail.

Fed Governor Lael Brainard said the central bank should soon begin reducing its balance sheet, as long as economic data on U.S. jobs and growth holds up.

Philadelphia Fed President Patrick Harker, a FOMC Member, told the Wall Street Journal that if inflation did not move toward the Fed’s 2 percent target, then this would be a reason to hold off raising rates.

In economic news, the NFIB Small Business Index came in below expectations at 103.6. The JOLTS report showed fewer than expected job openings, coming in at 5.67 million versus the 5.98 million estimate. Final Wholesale Inventories were 0.4% higher. This was slightly above the forecast and previous read.