Oil At 14-Month High On Falling Inventories Ahead Of Fed Minutes

Crude oil rose for a second day on Wednesday on speculation that shrinking US crude stockpiles indicate increased demand in the world’s biggest oil consumer; markets will be closely watching speech by the Federal Reserve chairman Ben Bernanke and the Federal Open Market Committee (FOMC) meeting minutes.

Crude oil inventories in the US fell last week by 9 million barrels according to the American Petroleum Institute report, while a government report today may show that supplies fell by 3.2 million barrels although refineries boosted output to meet the rising demand during the summer driving season.

The rising anticipation for Bernanke`s speech and the release of the FOMC meeting minutes later in the day is pushing the US dollar lower against other major currencies as markets are looking for signs of when the US Federal Reserve could start winding down its stimulus program; this increases the appeal of the dollar dominated commodities.

But the rise of crude prices above the $104-mark and staying at those high levels for a long time could start hurting the stock market and growth. “Oil spiking above $105 is problematic. At those elevated levels it starts to act as a tax on consumers and "hurt their spending" on goods and services”, said Andrew Busch.

- Crude is trading around $104.40 a barrel after rising $0.87.

- Brent is trading around $107.95 a barrel after rising $0.14.

Downside pressures however are seen today as China, the world’s second largest oil consumer, recorded its biggest drop in exports since 2009. Chinese exports fell in June 3.1% from a year earlier amid slack global demand; this would be the first decline since January 2012, confirming that the economy is slowing.

Also adding to the downside pressures today is a report released by the International Monetary Fund on Tuesday in which it trimmed its global growth forecast for the fifth time since early last year, due to a slowdown in emerging economies and recession-struck Europe, while S&P downgraded Italy`s rating citing worsening economic prospects.

Meanwhile, the geopolitical tensions in the Middle East persist, supporting worries that the mounting tensions could disrupt oil shipments. Egypt was granted $8 billion in aid by Gulf states a timetable for fresh elections was announced, yet violence has been growing since the removal of President Mohamed Mursi.

- Natural gas is trading at $3.642 per cubic feet after falling 0.41%.

- Gasoline is trading at $2.9515 a gallon after rising 0.87%.

- Heating oil is trading at $2.987 a gallon after rising 0.04%.