Oil rises after ECB unveils plan to ease debt crisis

NEW YORK: The price of oil rose yesterday after the European Central Bank (ECB) delivered new measures to help ease Europe’s debt crisis.
The price has risen more than 20 percent since late June.
The ECB’s move could also boost Europe’s struggling economy and boost demand for oil.
Expectations for ECB action have been high since the bank’s president, Mario Draghi, said in July that the bank will do whatever it takes to save the euro currency.
Positive news about the US jobs market also boosted oil.
Reports showed more private-sector hiring and fewer unemployment claims.
The ECB agreed to launch a new and potentially unlimited bond-buying program to lower struggling euro zone countries’ borrowing costs and draw a line under the debt crisis, ECB President Mario Draghi said.
Seeking to back up his July pledge to do whatever it takes to preserve the euro, the new plan is aimed at the secondary market and would address bond market distortions and “unfounded” fears of investors about the survival of the euro.
Europe’s debt crisis and slowing global economic growth have fueled worries about the demand outlook for commodities.
The EU’s statistics office Eurostat confirmed yesterday that gross domestic product in the 17 countries using the euro fell 0.2 percent quarter-on-quarter.
Brent crude futures rose $1.48 to $ 114.57 a barrel by 1430 GMT. US crude rose $ 1.77 to $ 97.13 after jumping more than $2 a barrel.
“Draghi has delivered in line with the most optimistic expectations in terms of the proposed ECB bond-buying. The ECB has agreed to be ranked alongside ordinary bond-holders in terms of seniority, the quantity is unlimited and the conditionality and sterilization are largely lip-service to the Bundesbank,” said Guy Wolf, macro strategist at Marex Spectron. “There is still a long way to go to resolve the imbalances in the Euro-zone but this is a significant step and is a Euro-bond in all but name.”
Further buoying the US futures in particular was a better than expected rise in private sector jobs. US private employers added 201,000 jobs in August, a report by an ADP payrolls processor showed yesterday. “The ADP figures were well above expectations, which is keeping US futures up,” said Michael Hewson, market analyst at CMC Markets.
Investors will be on the look-out next for US non-farm payrolls figures, scheduled for release on Friday. A soft report could strengthen the case for a third round of monetary easing, also known as quantitative easing (QE3), by the Federal Reserve.
Lending further support to oil prices, US crude stocks fell sharply last week as Hurricane Isaac’s passage through the Gulf of Mexico shut in production and closed ports, data from the industry’s American Petroleum Institute showed.
Market participants will be eyeing data from the Energy Information Administration for further indications. “A drop was expected. The fall will amount to 12.5 million barrels in total lost to Isaac. We will see that in the statistics next week,” said Olivier Jakob at consultancy Petromatrix in Zug, Switzerland. “Production is a little bit slow to come back and there is the left over of Isaac on its way back. It’s not strong but could delay restarts.”
Tensions in the Middle East continued to uphold the risk premium embedded in oil prices. Prices were capped however, by continued talk of a strategic stocks release in the US, which has kept Brent largely within a $110-$115 a barrel range over the last month. “There is no trend in the flat price in the last four weeks because of continued support from Iran and SPR (Strategic Petroleum Reserve) noise capping prices,” Jakob said.
Supply of the North Sea crude oil that underpins the benchmark Brent contract is set to rise from a record low in October, weakening a source of support for prices, export schedules showed yesterday.