Crude oil bounces as Fed rate cut hopes outrank demand worries (NYSEARCA:USO)

Crude oil futures snapped a five-session losing streak Wednesday, as renewed hopes for a September interest rate cut by the Federal Reserve outweighed concerns about demand after data showed builds in U.S. crude and fuel stocks.

U.S. Treasurys rallied Wednesday after private payrolls data from ADP showed a slowdown in hiring, as companies added a fewer than expected 152K jobs in May following a downwardly revised 188K jobs in April.

The yield on the two-year Treasury fell 4 bps to 4.73%, shedding 25 bps over the past five sessions for its longest stretch of declines in four years, while the 10- and 30-year rates finished at their lowest levels since March 28, 4.29% and 4.44% respectively, after also falling for five straight trading days.

According to the CME FedWatch Tool, traders now see a ~67% chance of a Fed rate cut by September, compared with less than 50% last week.

“Data outside of the oil world was sufficiently weak that it’s going to give cover to the Fed to finally cut rates and spur some growth,” Again Capital’s John Kilduff told Reuters.

The major oil benchmarks rebounded after closing Tuesday at their lowest since early February, with front-month Nymex crude (CL1:COM) for July delivery settling +1.1% to $74.07/bbl, while front-month August Brent crude (CO1:COM) also finishing +1.1% to $78.41/bbl.

Meanwhile, U.S. natural gas futures (NG1:COM) continued their roller-coaster ride, with the Nymex July front-month contract closing +6.6% to $2.757/MMBtu.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI), (UNG), (BOIL), (KOLD), (UNL), (FCG)

The U.S. Energy Information Administration reported a 1.2M-barrel build in crude stocks for last week vs. expectations of a 1.6M-barrel draw in a Wall Street Journal survey, gasoline and distillate stocks rose, while refineries stepped up capacity use to 95.4% from 94.3% the previous week.

“It’s pretty surprising that crude is holding up given the size of the build,” Tortoise Capital Advisors President Matt Sallee told Bloomberg, “but crude prices have already dropped quite a bit in the last several days, so that’s providing a little bit of a floor.”