Investing.com - U.S. crude oil inventories fell more than expected last week, logging their seventh-consecutive weekly draw.
Initial gains in a knee-jerk reaction quickly faded as bulls turned cautious ahead of the Federal Reserve’s policy decision.
The Energy Information Administration said in its regular weekly report that crude oil inventories decreased by about 8.5 million barrels in the week to July 26. That was compared to forecasts for a stockpile draw of just 2.59 million barrels, adding to a higher-than-estimated draw in gasoline inventories and an unexpected decline distillate stockpiles.
While oil prices initially jumped an additional 30 cents after the data, those gains quickly faded.
U.S. crude prices last rose 0.3% to $58.21 a barrel by 11:17 AM ET (15:17 GMT), down from $58.44 prior to the publication.
London-traded Brent crude futures traded up 0.5% to $64.92 a barrel, compared to $65.09 ahead of the release.
“On the surface of it, this is a whopping drawdown, coming after last week’s 11-million-barrel drop, but the follow-up price movement seems to indicate that people are still having trouble ‘buying’ the strong numbers for crude after Hurricane Barry,” Investing.com senior commodity analyst Barani Krishnan said after the report. “Or maybe they are just waiting out the Fed.”
Oil has traded higher in the last five sessions in the run-up to the Fed’s rate decision at 2:00 PM ET (18:00 GMT). The U.S. central bank is expected to cut interest rates by a quarter point in what could provide incentive for diverting capital into inflationary assets such as oil. But concerns abound that the Fed will not provide as dovish a stance as markets are hoping.
Krishnan said that if the Fed followed through with the forecast of a 25-basis-point cut, WTI could show an immediate reaction to the upside.
“But after the initial euphoria, and barring more dovish overtones from Fed Chairman Jerome Powell, the oil rally could soon run out of steam,” he warned.