NEW YORK (DTN) -- New York Mercantile Exchange oil futures snapped a two-day selloff and rallied Wednesday afternoon on a weakening dollar and expectations for a seventh-straight weekly drawdown in U.S. crude oil inventories.
The oil and equity markets also reversed higher after the Institute for Supply Management's data showed the U.S. nonmanufacturing index surged to the highest level in eight months.
In addition, minutes of the U.S. Federal Reserve's June meeting showed a hike in the federal funds rate is unlikely this year because policymakers are uncertain about the labor market, said analyst Phil Flynn at Price Futures in Chicago.
"Up until now, the market has been macro-economically driven and so a combination of ISM data and dovish Fed minutes is what gave the oil market support," Flynn added. "The ISM data was the first positive data we've seen in a while the Fed minutes suggest rates will stay low for a long time."
NYMEX August West Texas Intermediate crude oil futures surged 83 cents to $47.43 per barrel (bbl) at settlement, reversing off a better than one-week low at $45.92. September Brent on the IntercontinentalExchange settled 84 cents higher at $48.80 bbl, reversing off a better than one-week spot low of $47.17.
In products trade, NYMEX August ULSD futures gained 2.55 cents to $1.4711 gallon at settlement, reversing off a better than one-week spot low of $1.4289. The August RBOB futures contract settled 0.42 cent higher at a $1.4329 gallon settlement after bouncing off a three-month spot low of $1.3807.
On Wall Street, the main U.S. equity indices each reversed higher after shaking off early losses on risk-off trade, with the Dow Jones Industrial Average and S&P 500 each up 0.3% while the Nasdaq 100 rose 0.5%.
The equities rally followed the release of ISM data showing the U.S. service sector activity jumped to 56.5 in June, the highest level since November 2015, up from 52.9 for May.
The minutes of the June 14-15 Federal Open Market Committee meeting, which took place ahead of the June 23 referendum in which Britons voted to leave the European Union, showed policymakers uneasy over Brexit.
FOMC members also cited a severe slowdown in the U.S. labor market as the main reason for leaving rates unchanged. Before these events, Fed members had suggested they would raise rates.
On Friday, the Labor Department will release its nonfarm payroll report for June, providing a snapshot of U.S. labor market conditions.
In currency trade, the dollar slumped after trading earlier to a better than one-week high. Earlier, the sterling pound fell to a fresh 31-year low and below $1.28 to the dollar. A weaker dollar is bullish for oil futures and vice-versa.
The oil market is now focused on fundamentals in aftermarket hours. The American Petroleum Institute will issue its oil supply report for the week-ended July 1 at 4:30 PM ET. That API data will come ahead of the Energy Information Administration's weekly supply report that's due at 11:00 AM ET Thursday. The reports have been delayed a day since federal offices were closed Monday for the Independence Day holiday.
A survey this morning showed the market expects U.S. crude oil stocks to have been drawn down by 2.8 million bbl, while gasoline stocks are seen down 1.0 million bbl and distillates inventories are expected to have declined by 1.2 million bbl.
George Orwel can be reached at email@example.com
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