Ninth Straight Inventory Rise Sinks Crude Oil

Crude oil futures plunged on Wednesday after the U.S. Energy Information Administration (EIA) reported a ninth straight rise in U.S. crude stockpiles. The downside momentum at the close puts the market in a position to challenge the psychological $50 level.

According to the EIA, U.S. storage rose to another record high, surging 8.2 million barrels from the previous week. Traders were expecting an increase of 1.1 million barrels although this estimate was made before Tuesday’s American Petroleum Institute’s inventories report showed an 11.6 million barrel inventory build.

The report also showed an increase in U.S. oil production to 9.1 million barrels a day, the highest level in more than a year.

Economic News

ADP and Moody’s reported on Wednesday that the private sector of the economy added 298,000 jobs last month. This was well above a Reuters estimate of 190,000. The data likely means that Friday’s Non-Farm Payrolls report for February should show a strong headline number.

In other news, fourth-quarter productivity came in unchanged at 1.3%. This was also below the forecast. Wholesale inventories fell 0.2 percent, more than expected.

Gold

April Comex gold futures fell sharply on Wednesday in reaction to the stronger U.S. Dollar. The dollar rose after new data showed the private sector of the economy added far more new jobs than expected in February. This news helped increase the odds of a rate hike by the Fed next week. Rising rates could continue to drive down the price of a non-yielding asset like gold.

U.S. Treasurys

U.S. Treasury yields rose on the ADP news, with the benchmark 10-year yield hitting its highest level since December 2016 and the two-year note yield reaching levels not seen since 2009.

The strong labor report suggests the Fed may have to be more aggressive in raising rates and preventing the economy from overheating. This could be a negative for stocks.

After the report, expectations for a March rate hike jumped to around 91 percent, according to the CME Group’s FedWatch tool.

U.S. Stocks

U.S. equity markets were under pressure on Wednesday as investors continued to reduce positions ahead of next week’s Fed meeting. Investors were also reacting to the surge in Treasury yields and to the steep plunge in crude oil prices which weighed on energy stocks.