Oil prices declined sharply on Wednesday after government data showed an unexpected rise in US commercial crude inventories, raising concerns about an worsening supply glut.
The West Texas Intermediate (WTI) benchmark for US crude fell $1.21 or 3.2% to $36.66 a barrel on the New York Mercantile Exchange, undoing the previous day’s rally. Global benchmark Brent crude reestablished a slight premium over WTI, but was still down $1.12 or 3% at $36.67 a barrel on ICE Futures Europe.
Oil prices have experienced renewed volatility this week after rising more than 9% last week. Thin trading volumes are partly to blame for the sudden price movement.
The US Energy Information Administration (EIA) announced on Wednesday that commercial crude stockpiles rose unexpectedly last week, a sign the global supply glut may be worsening. Commercial crude inventories rose by 2.63 million barrels in the week ended December 25 after falling by 5.88 million the previous week. A median estimate of economists called for stockpiles to fall by another 2.5 million barrels last week.
Falling oil prices also weighed on energy shares, with the S&P 500’s energy sector declining more than 1%. The S&P 500 Index was down 0.3% after the opening bell and is on pace for a slight gain for the year.
The Dow Jones Industrial Average was also down 0.2%. Benchmark oil companies Chevron Corp (NYSE: CVX) and Exxon Mobil (NYSE: XOM) were among the biggest losers.
European markets also traded lower on Wednesday after a strong rally in the previous session. The pan-European STOXX 600 Index declined 0.4%.
In other commodities, gold prices fell $9 or 0.8% to $1,059.00 an ounce, the lowest level on the Comex division of Nymex since December 23. Silver futures also fell 13 cents or 0.9% to $13.80 an ounce.
A firming US dollar was partly responsible for the sudden drop in gold prices. The dollar index, a weighted average of the US currency against a basket of six rivals, climbed 0.3% to 98.37. That was the dollar’s third consecutive advance.
The dollar firmed against the British pound and the commodity-driven Canadian dollar. It was virtually unchanged against the euro and Japanese yen.
In economic data news, US pending home sales fell unexpectedly in November for the third time in four months, a sign that growth in the housing market may be cooling. The National Association of Realtors (NAR) reported on Wednesday that its pending home sales index fell 0.9% for November. Economists had expected an increase of 0.5%.