U.S. crude oil snapped a four-day loss to end sharply higher on Wednesday, as the dollar tumbled against a basket of major currencies after the Fed Reserve in its monetary policy statement provided indications of a rate hike soon, possibly in July or September.
Oil futures were sharply down just before the Fed announcement, as the official weekly oil report from the Energy Information Administration showed crude stockpiles to have risen much more than expected last week, for a tenth straight week.
The Federal Reserve on Wednesday backed away from its pledge to be “patient,” a strong signal that the central bank will hike interest rates in July or September. The move to remove the “patient” phrase came despite concerns about the rapid rise in the U.S. dollar, which touched 12-year highs against the euro earlier this week.
Nonetheless, Fed Chair Janet Yellen said the central bank is not ‘impatient’ to raise rates and has not decided on the timing of the first rate hike.
Today’s vote was unanimous, keeping interest rates at zero, where they have been since December 2008. The Fed said a rate hike in April is unlikely and a slight downgrade in the economic outlook means a June rate hike may now be off the table.
Earlier today, a weekly report from the U.S. Energy Information Administration showed U.S. crude oil inventories to have surged 9.6 million barrels in the week ended March 13, while analysts expected an increase of 3.7 million barrels. The report showed U.S. crude oil inventories at 458.5 million barrels end last week, the most in over 80 years. Stockpiles have been climbing every week since the week ended January 9.
Data also showed stockpiles at the storage and trading hub in Cushing, Oklahoma to have increased about 2.9 million barrels last week.
Gasoline stocks dropped by 4.5 million barrels last week, with analysts anticipating a decline of 1.5 million barrels. Inventories of distillate, including heating fuel, rose 0.4 million barrels, even as analysts estimated a drop of 1.1 million.
Yesterday, industry group American Petroleum Institute (API) said after the market’s settlement that crude stockpiles rose by a whopping 10.5 million barrels in the week to March 13.
Meanwhile, Organization of the Petroleum Exporting Countries say it is only a matter of time before it prices U.S. shale producers out of the market. The cartel says that American oil production will fall “possibly by late 2015,” citing the number of U.S. rigs that have recently gone offline.
Light Sweet Crude Oil futures for April delivery surged $1.20 or 2.8 percent to settle at $44.66 a barrel on the New York Mercantile Exchange Wednesday.
Crude prices for April delivery scaled a high of $44.83 a barrel intraday and a low of $42.02.
Light Sweet Crude Oil futures for May delivery, the most actively traded contract, soared $1.46 or 3.23 percent to settle at $46.65 a barrel on the New York Mercantile Exchange Wednesday.
On Tuesday, U.S. crude futures for April delivery settled lower by $0.42 or 1 percent to settle at $43.46 a barrel, having touched a 2009 low below $43 earlier intraday, on continued concerns that stockpiles will continue to buildup in the U.S. and elsewhere.
The dollar index, which tracks the U.S. unit against six major currencies, traded at 98.40 on Wednesday, down from its previous close of 99.65 on Tuesday in late North American trade. The dollar scaled a high of 99.80 intraday and a low of 98.09.
The euro trended higher against the dollar at $1.0743 on Wednesday, as compared to its previous close of $1.0598 in North American trade late Tuesday. The euro scaled a high of $1.0801 intraday and a low of $1.0581.
In economic news, eurozone merchandise trade surplus for January rose sharply from the same month last year as exports stagnated and imports declined, data from Eurostat showed Wednesday. The unadjusted trade surplus grew to EUR 7.9 billion from EUR 0.1 billion a year ago. Exports remained unchanged during the period, while imports fell 6 percent.
Eurozone construction output increased for the second straight month in January, at a faster pace, data from Eurostat showed Wednesday. Output in the construction sector climbed 1.9 percent month-on-month in January, much faster than December’s 0.2 percent increase, which was revised from a 0.8 percent decline. In November, production had fallen 0.4 percent.
The U.K. unemployment rate remained at the lowest level in more than six years and the employment rate hit the highest since 1971 during three months to January. The ILO jobless rate came in at 5.7 percent in three months to January, the same rate as in October to December period, the Office for National Statistics said Wednesday. It was expected to fall to 5.6 percent. Nonetheless, the rate was below the 6 percent seen in the quarter ending October and this was the lowest rate in more than six years.
Meanwhile, UK Chancellor of the Exchequer George Osborne raised the economic growth forecasts for this year and next, but warned that any adverse development in Greece could significantly affect the economy. The growth forecast for this year was raised to 2.5 percent from the 2.4 percent projected by the Office for Budget Responsibility in its December autumn statement. The projection for next year is forecast at 2.3 percent from 2.2 percent previously. Growth is seen improving to 2.4 percent by 2019.
UK’s unemployment rate was forecast to fall to 5.3 percent this year, while inflation forecast was revised down to 0.2 percent.
The Organization for Economic Cooperation and Development said growth prospects in the major economies look slightly better than its previous assessment in November and called for a balanced policy to ensure sustainable growth.
The think tank projected the U.S. economic growth at 3.1 percent this year and 3 percent in 2016. The forecast for both 2015 and 2016 were left unrevised. Japan is projected to grow by 1 percent in 2015, faster than the prior estimate of 0.8 percent. In 2016, it is expected to expand 1.4 percent compared to the 1 percent projected in November.
The 19-nation bloc eurozone is estimated to expand 1.4 percent in 2015 and by 2 percent in 2016.
China, the second largest economy in the world, is expected to grow by about 7 percent in 2015. The estimate for 2015 was revised down from 7.1 percent, while that for 2016 was left unchanged at 6.9 percent.
India will grow by 7.7 percent in 2015 and by 8 percent in 2016, the OECD said. The figures were revised up from 6.4 percent and 6.6 percent, respectively.
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