Forexpros – Crude oil futures added to heavy losses on Wednesday, dropping to a seven-week low after a U.S. government report showed a massive increase in U.S. oil supplies last week.
On the New York Mercantile Exchange, light sweet crude futures for delivery in May traded at USD102.06 a barrel during U.S. morning trade, tumbling 1.9%.
It earlier fell by as much as 2.05% to trade at USD101.91 a barrel, the lowest since February 16.
Crude prices traded at USD102.77 prior to the release of the Energy Information Administration data.
The U.S. EIA said in its weekly report that U.S. crude oil inventories surged by 9.0 million barrels in the week ended March 30, significantly higher than expectations for a 2.2 million barrel increase. U.S. crude supplies jumped by 7.1 million barrels in the preceding week.
Total U.S. crude oil inventories stood at 362.4 million barrels as of last week, the highest since August, underscoring fears over a slowdown in oil demand from the U.S.
Total motor gasoline inventories decreased by 1.5 million barrels, compared to expectations for a 1.4 million barrel decline, after falling by 3.5 million barrels in the preceding week.
The U.S. is the world’s biggest oil-consuming country, responsible for almost 22% of global oil demand.
Also Wednesday, payroll processing firm ADP said in a report that non-farm private employment rose by 209,000 in March, beating expectations for an increase of 200,000.
The upbeat employment data further dampened hopes for monetary easing in the U.S.
A separate report from the U.S. Institute of Supply Management said that service sector activity in the U.S. fell more-than-expected in March, but expanded for the 27th consecutive month.
Later this week, attention will turn to U.S. non-farm payrolls data, which could shed further light on the strength of the U.S. economy and the need for further monetary easing in the U.S.
Oil traders have long been taking cues from the monthly jobs report, the most-closely followed indicator of U.S. employment.
Oil prices were already on the defensive after minutes from the March meeting of the Federal Reserve’s Open Market Committee indicated that the central bank was unlikely to introduce more stimulus measures to help boost the U.S. economy in the near term.
Stock markets, commodities and growth-linked currencies all came under pressure, while the dollar spiked higher.
The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was up 0.55% to trade at 79.98, the highest since March 22.
Also weighing on sentiment, Spain’s Treasury auctioned EUR2.59 billon of government bonds, short of the maximum targeted amount of EUR3.5 billion, in the country’s first debt auction since last week’s austerity budget.
Following the auction, the yield on Spanish 10-year bonds climbed to 5.7%, up from 5.5% before the sale.
There have been renewed concerns of further debt contagion in the euro zone in recent weeks amid fears over the fiscal health of the region’s fourth largest economy.
On Tuesday, Spain’s government announced that the country’s public debt will rise to a record 79.8% of gross domestic product this year.
The European Central Bank left its benchmark interest unchanged at 1.00%, in a widely expected decision earlier in the day.
Following the decision, ECB President Mario Draghi said that growth has “stabilized at low levels” and that a moderate recovery is expected in course of the year.
Comments from Saudi Arabia saying that the Kingdom was likely to keep output high even in the event of a strategic stocks release further weighed on energy prices.
The market is now balancing Saudi assurances that it would make up for any supply shortfalls against the potential risk for the loss of oil from Iran amid tighter Western sanctions on Tehran over its disputed nuclear program
Elsewhere, on the ICE Futures Exchange, Brent oil futures for May delivery dropped 1.1% to trade at 123.47 a barrel, with the spread between the Brent and crude contracts standing at USD21.41, the widest since October.
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