Oil rebounded nearly 3 percent on Wednesday, the biggest daily percentage gain in more than a month, as a weaker dollar, stronger equities and a smaller-than-expected rise in US crude stockpiles whetted investors' risk appetite. The gains came a day after oil futures posted their steepest decline in more than eight months as China boosted interest rates. Investors on Wednesday reassessed the rate hike and deemed China's demand for oil would remain strong.
Oil gained along with metals and grains as the dollar index slumped 1.3 percent. The dollar reversed the prior session's China-inspired gains after an influential consultancy said the Federal Reserve plans to buy $500 billion of US Treasuries over six months and leave itself room for more buying.
US crude for November delivery expired at the close and settled at $81.77 a barrel, gaining $2.28, or 2.87 percent, the biggest percentage gain for a day since September 10, when prices ended up 2.96 percent. The December contract ended at $82.54, rising $2.38, or 2.97 percent.
Trading volume was subdued for a second day, around 685,000 lots as of 3;30 pm EDT (1930 GMT), well below the 30-day average of 768,000. ICE December Brent crude rose $2.50, or 3.08 percent, to $83.60 a barrel. US equities gained more than 1 percent on stronger quarterly earnings, an upbeat outlook from the industrial sector and the weaker dollar. Oil investors view higher equities as a barometer for future oil demand.
Weekly inventory data also lent fundamental support. US stockpiles rose by only 670,0000 barrels last week, well below analysts' forecast and short of a previously reported increase of 2.3 million barrels in industry data. "The larger-than-expected draws in crude and distillates are supportive," said Andy Lebow, broker at MF Global in New York.
Distillate stocks were also bullish, falling more than expected, but gasoline inventories surprised analysts with 1.2 million-barrel rise, weighing on the motor fuel market. US gasoline for November delivery ended at $2.0826 a gallon, up 3.43 cents, or 1.67 percent, lagging gains in crude and heating oil. The gasoline crack spread - refiners' margin from processing crude into fuel - ended at $5.70 a barrel, narrowing from $6.54 at the close on Tuesday.
While US government inventory data was modestly supportive, a weak dollar and strong stock market provided greater guidance for oil and other commodity investors. The Reuters-Jefferies CRB index, a global commodities benchmark, gained 2.05 percent. On Tuesday, it fell almost 2 percent, its biggest one-day loss in 3-1/2 months. The greenback slid after Medley Global Advisors, an influential consultancy, said the Federal Reserve plans to buy $500 billion worth of US Treasuries over the next six months.
The report reinforced expectations that the Fed was going into an asset-buying scheme to boost the flagging US economic recovery, which signals better oil demand going forward. US crude reached a five-month high of $84.43 on October 7 as the dollar slumped on expectations the Fed would soon embark on a second round of expansionary monetary measures.