U.S. data drags oil lower; dollar up after Fed minutes

NEW YORK (Reuters) - Oil prices fell on Wednesday after U.S. crude inventories rose by much more than expected and exports fell, while the dollar added to gains after minutes showed Federal Reserve policy makers largely united on the need to raise borrowing costs further.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., October 17, 2018. REUTERS/Brendan McDermid

A gauge of stocks across the world dipped, tracking Wall Street’s reaction to the Fed minutes, while the outlook on earnings soured after a warning on the European auto sector and a revenue miss from IBM.

WTI crude touched its lowest price in a month after U.S. stockpiles rose by 6.5 million barrels, almost triple what analysts had forecast. This happened even as U.S. crude production slipped last week, partly as offshore facilities closed temporarily for Hurricane Michael.

WTI fell 2.63 percent to $70.03 per barrel and Brent was last at $80.32, down 1.34 percent on the day.

“A tick higher in refining activity and a drop in production due to hurricane activity in the Gulf was not enough to halt a fourth consecutive climb in (inventories)- and a solid one at that,” said Matt Smith, director of commodity research at ClipperData in Louisville, Kentucky.


Every Federal Reserve policy maker backed raising interest rates last month in a meeting where they also generally agreed borrowing costs were set to rise further, according to the minutes from the meeting.

The dollar index hit session highs after the Fed minutes were released, although the bulk of Wednesday’s leg up came before the news.

“There was a pretty well-formed expectation that it would more likely showcase a Fed that’s more confident and assertive debating tighter policy,” said Richard Franulovich, head of FX strategy at Westpac Banking Corp in New York.

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The euro fell 0.64 percent to $1.1499 and Sterling was last trading at $1.3115, down 0.52 percent on the day.

Lower-than-expected UK inflation data weighed on sterling, which gave up the previous day’s gains.

The Japanese yen weakened 0.35 percent versus the greenback at 112.65 per dollar. The dollar index rose 0.63 percent.

On Wall Street, IBM fell 7.6 percent, dragging blue chips lower a day after the company missed revenue expectations. On Tuesday, the S&P 500 posted the biggest daily gain since late March.

Stocks extended losses when oil prices fell further, but the S&P 500 shifted in and out of losses after the Fed minutes and ended down less than a point.

“This is consistent with the Fed’s rhetoric that they will continue to gradually raise interest rates. A lot has to happen for the Fed not to move again in December,” said Ryan Sweet, head of monetary policy research at Moody’s Analytics in West Chester, Pennsylvania.

“The stock market would have to go into a persistent, prolonged decline to change the Fed’s outlook on the economy.”

The Dow Jones Industrial Average fell 91.74 points, or 0.36 percent, to 25,706.68, the S&P 500 lost 0.71 points, or 0.03 percent, to 2,809.21 and the Nasdaq Composite dropped 2.79 points, or 0.04 percent, to 7,642.70.

European stocks hit a one-week high in early trade, but then were pulled lower by a 1.9 percent fall in an index of auto stocks. Goldman Sachs said slow demand in China could hit earnings in the sector.

The pan-European STOXX 600 lost 0.40 percent and MSCI’s gauge of stocks across the globe shed 0.08 percent.

Emerging market stocks lost 0.10 percent. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.26 percent higher, while Japan’s Nikkei rose 1.29 percent.

U.S. Treasury yields continued to trade in a tight range after a massive run-up last week, despite choppy trading after the Fed minutes were published.

Benchmark 10-year notes last fell 13/32 in price to yield 3.2031 percent, from 3.156 percent late on Tuesday.

The 30-year bond last fell 23/32 in price to yield 3.3695 percent, from 3.33 percent late on Tuesday.

Reporting by Rodrigo Campos, Karen Brettell, David Gaffen and Richard Leong in New York; additional reporting by Jason Lange and Pete Schroeder in Washington, DC; Editing by Jonathan Oatis and Nick Zieminski