Crude Rallies on Euro Comments, Stimulus Speculation

Oil prices rose somewhat Thursday on reassuring comments from the European Central Bank president and renewed hopes of an economic stimulus.

Nymex front-month oil futures for September delivery settled at $89.39 Thursday, up 42 cents or 0.4%. Brent crude futures were trading at $105.20, up 82 cents. Crude had traded even higher earlier in the session, hitting an intraday high of $90.47.

The rally came after comments by European Central Bank President Mario Draghi that offered a staunch defense of the euro zone. Fears that the euro zone could fall apart have cast a bearish shadow on the oil market in recent months.

"We think the euro is irreversible. And it is not empty words now. The actions we are making would make it irreversible," Mr. Draghi said at a conference of businessmen and politicians in London.

Mr. Draghi's comments may indicate the ECB's willingness to restart bond purchases as Spanish government bond yields have hit all-time highs recently and Italy is facing contagion from that. Or he could be indicating that some other measures are in the pipeline.

Oil analysts attributed Thursday's rise in prices to the Draghi comments, which spurred a jump in the euro relative to the dollar. Dollar-denominated commodities like oil become cheaper for consumers in other countries when the dollar falls.

But Mr. Draghi's comments came after Wednesday's U.S. oil inventory report that pointed to surprisingly large builds of crude oil and refined products that many analysts considered bearish. That bearish backdrop explains why oil prices gave up some of their gains later Thursday after jumping considerably in the morning, analysts said.

Tariq Zahir, a managing member at Tyche Capital Advisors, characterized Wednesday's EIA report as "tremendously bearish."

U.S. economic data Thursday continued to leave markets unimpressed.

On the positive side, the number of U.S. workers filing for unemployment benefits fell for the fourth time in five weeks, suggesting the sluggish labor market is gaining steam.

Initial jobless claims fell by 35,000 to a seasonally adjusted 353,000 in the week ended July 21, the Labor Department said Thursday. That was far lower than economists' forecast of 380,000 claims.

But orders for durable goods were a mixed bag.

Manufacturers' orders for durable goods, meant to last at least three years, jumped by 1.6% to a seasonally adjusted $221.63 billion, the Commerce Department said Thursday. Economists surveyed by Dow Jones Newswires had forecast a 0.6% rise.

But June's increase was led by stronger demand for civilian and defense aircraft, up 14.3% and 23.9%, respectively. Outside those typically volatile categories, new orders were much weaker. Excluding transportation, new orders fell 1.1%.

Some analysts see an upside in the weak economic data in the boosted prospects for more economic stimulus. Past rounds of quantitative easing have weakened the dollar and boosted crude.

"The market still has the mind-set that bad is good," said Carl Larry of Oil Outlooks & Opinions, a research and consulting firm. Mr. Larry said anticipation is high for next week's meeting of the Federal Open Market Committee, at which the Federal Reserve could take some form of stimulus.

Copyright (c) 2012 Dow Jones & Company, Inc.


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Brent Crude Oil : $51.78/BBL 0.77%
Light Crude Oil : $50.85/BBL 0.83%
Natural Gas : $2.99/MMBtu 4.77%
Updated in last 24 hours