Oil Rises as ECB Announces Bond-Buying Program

Oil rose after the European Central Bank announced a bond-buying plan to ease the region’s debt crisis and U.S. crude supplies fell to a five-month low.

Futures climbed and equities surged as ECB President Mario Draghi said policy makers agreed to an unlimited bond-purchase program and as data from ADP Employer Services bolstered optimism in the U.S. labor market. An Energy Department report showed that stockpiles dropped 7.43 million barrels to 357.1 million last week. It was the biggest decrease since December.

“The primary reason for the rise in oil is that equities are surging on the ECB bond-buying program and the positive ADP employment numbers,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Most of the inventory data today is supportive as well.”

Crude oil for October delivery advanced 17 cents to settle at $95.53 a barrel on the New York Mercantile Exchange. The contract climbed as much as 2.5 percent to $97.71 earlier. Futures are down 3.3 percent this year.

Brent oil for October settlement rose 40 cents, or 0.4 percent, to end the session at $113.49 a barrel on the London- based ICE Futures Europe exchange. The European benchmark grade traded at a $17.96 premium to West Texas Intermediate crude in New York, up from yesterday’s $17.73.

Futures retreated from the day’s highs after failing to reach $97.84, a technical resistance level from a Fibonacci study from the year’s high in March, said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. Traders use technical indicators such as the Fibonacci retracement to predict price movements.

Follow Through

“Prices started weakening after we got to the $97.70 area and there was no follow through,” Kilduff said. “This is close to the 61.8 percent Fibonacci retracement level. The same thing happened last week.”

The ECB’s bond-buying plan is the most ambitious yet in the central bank’s fight to wrest back control of interest rates in a fragmented economy and save the euro after nearly three years of turmoil. The central bank reserved the right to terminate bond purchases if governments don’t fulfill their part of the bargain, Draghi said.

“The market had been marking time since early August as people waited for additional information about the ECB plans,” said Marshall Berol, co-portfolio manager of the Encompass Fund in San Francisco, which has about $300 million in assets. “It appears that people liked what they heard because all of the markets are moving higher.”

The Standard & Poor’s 500 (SPX) increased 2 percent.

Money Supply

Purchases will be fully sterilized, meaning that the overall impact on the money supply will be neutral, and the ECB will not have seniority, he said.

“If purchases had not been sterilized, it would have been wildly bullish for commodities because that would increase the money supply,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion.

Companies in the U.S. added 201,000 workers in August, according to figures from Roseland, New Jersey-based ADP. Jobless claims fell by 12,000 to 365,000 in the week ended Sept. 1, the fewest in a month, the Labor Department reported today in Washington.

A Labor Department report tomorrow may show overall hiring, which includes government jobs, climbed 127,000 last month after rising 163,000 in July, according to the median estimate of economists in a Bloomberg survey.

Falling Output

Oil production dropped last week as Hurricane Isaac moved through the Gulf of Mexico. About 95 percent of oil output from the Gulf was halted on Aug. 31, three days after Isaac made landfall, according to the Bureau of Safety and Environmental Enforcement. About 43 percent of oil production from the Gulf remained shut today, a BSEE report showed.

Crude production tumbled 12 percent to 5.49 million barrels a day in the week ended Aug. 31, the lowest level since September 2011. Output reached 6.36 million barrels a day in the week ended July 20, the highest level since February 1999.

“It doesn’t appear that there was much in the way of damage to platforms,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “Crude production should be back at multi-year highs within three or four weeks.”

Refineries operated at 86.1 percent of capacity, down 5.1 percentage points from the prior week and the lowest level since April, the report showed.

Gasoline inventories fell 2.33 million barrels to 198.9 million last week, the lowest level since November 2008, the report showed. Production of the fuel increased 93,000 barrels a day to 9.28 million.

Gasoline Market

“Not all of the numbers in the report make sense,” Evans said. “It is impossible for gasoline production to be up when refinery runs were down so much. This suggests that the market be even tighter than appears in this report.”

Gasoline for September delivery climbed 4.12 cents, or 1.4 percent, to settle at $2.991 a gallon in New York.

Electronic trading volume on the Nymex was 622,932 contracts as of 3:08 p.m. in New York. Volume totaled 494,973 yesterday, 7.7 percent below the three-month average. Open interest was 1.54 million, the most since May 16.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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