Commodities: Oil rally stalls on surprise rise in US crude inventories

West Texas Intermediate futures rose by 1.8% to $64.88 per barrel on Tuesday, to the highest level since December 2014. Brent crude futures topped at $70.24 per barrel, for a gain of 1.6%.

However, gains in energy prices stalled on the back of a surprise rise of 4.76 million barrels in the US crude inventories for the week ending January 2017, according the weekly American Petroleum Institute (API) report. This is the first build in inventories in ten weeks. Analysts have penciled in 1.6 million barrels drop.

"I really think US crude inventories are about to even out and probably show some modest builds over the next few weeks which would be seasonal as we head into turnarounds," said Andrew Lebow, senior partner at CRG Associates. "Perhaps this will blunt the rally and let some of the excess length out of the market."

The EIA report is due today. The US crude inventories may have fallen by 2 million barrels, according to the consensus of economist forecasts, versus 6.9-million-barrel drawdown a week earlier.

Metals traded higher as the IMF revised its global growth forecast up by 0.2% to 3.9% in 2018 and 2019. Bloomberg’s Industrial Metal index rose by 0.37% to 277.21.

LME copper futures rebounded by 0.4% to $6’947 per ton, after prices fell as much as 2.6% to $6,885 a ton in London, on the back of surging refined copper inventories. The rise in LME inventories is "a result of stockpile building during off-peak season," according to Wu Xianfeng, analyst at Huatai Futures, but the rise may not be large enough to keep the downside pressure on prices.

Gold consolidated gains near $1'340 on weaker dollar. "Gold could move higher as we are still in the early stages of a broader USD sell-off," said Stephen Innes, APAC head of trading at OANDA.

Data compiled by Bloomberg showed that bullion-backed ETF holdings rose to 2’254 tons on Tuesday, the highest since May 2013.

"The uptrend for gold is intact here, with a move above $1’337 targeting $1’345 and the highs from last week," wrote Chris Beauchamp, chief market analyst at IG.

By Ipek Ozkardeskaya