Crude oil rallies 2% on ECB bond plan, U.S. supply data eyed

Crude oil futures shot higher during U.S. morning hours on Thursday, climbing to the highest levels of the session after European Central Bank President Mario Draghi unveiled details of the banks bond purchasing program, aimed at easing the debt crisis in the region. Oil traders were also focusing on closely-watched weekly supply data on U.S. stockpiles of crude and refined products from the U.S. Energy Information Administration later in the day. On the New York Mercantile Exchange, light sweet crude futures for delivery in October traded at USD97.28 a barrel during U.S. morning trade, rallying 2%. Earlier in the day, prices rose by as much as 2.2% to trade at a session high of USD97.52 a barrel, the strongest level since August 27. Oil prices extended strong gains after ECB President Draghi said the central bank would launch an "outright monetary transaction", or OMT, program in the secondary market, which he said will provide "a fully effective backstop" against market volatility. Draghi said "strict and effective conditionality” was an essential element of the plan, under which the ECB would buy unlimited amounts of bonds of up to three years in maturity. The ECB will decide on when bond purchases will start and how long they will continue after a “full assessment”. The comments came after the central bank left its key lending rate unchanged at a record-low of 0.75%. Oil prices found further support after payroll processing firm ADP said U.S. non-farm private employment rose by a seasonally adjusted 201,000 in August, easily surpassing expectations for an increase of 140,000. The previous month’s figure was revised up to a gain of 173,000 from a previously reported increase of 163,000. A separate report showed that the number of people who filed for unemployment assistance in the U.S. last week fell by a more-than-expected 12,000 to a seasonally adjusted 365,000, compared to expectations for a decline of 7,000 to 370,000. Also Thursday, the U.S. Institute of Supply Management said that service sector activity in the U.S. grew at a faster rate than expected in August, hitting the highest level since May. Market players now looked ahead to Friday’s crucial report on non-farm payrolls, which will allow investors to further gauge the strength of the labor market and the need for additional easing by the Federal Reserve. Meanwhile, oil traders were looking ahead to weekly data from the U.S. government on oil supplies later in the day to gauge the strength of demand from the world’s largest oil consumer. The report was expected to show that U.S. crude oil stockpiles declined by 5.3 million barrels last week, as Hurricane Isaac shut offshore platforms in the Gulf of Mexico. After markets closed Wednesday, the American Petroleum Institute, an industry group, said that U.S. crude inventories fell by 7.2 million barrels last week to hit the lowest level in five months. The U.S. is the world’s biggest oil-consuming country, responsible for almost 22% of global oil demand. Elsewhere, on the ICE Futures Exchange, Brent oil futures for October delivery rose 1.4% to trade at USD114.67 a barrel, with the spread between the Brent and crude contracts standing at USD17.38 a barrel.

Courtesy: ForexPros