Crude Pares Gains Despite Steep U.S. Inventory Drop
Oil futures ended nearly unchanged Thursday, shrugging off a report that showed a steep drop in U.S. oil inventories and new measures by the European Central Bank to shore up Europe's economy.
Light, sweet crude for October delivery settled 17 cents, or 0.2%, higher, at $95.53 a barrel on the New York Mercantile Exchange. Brent crude on the ICE Futures exchange settled 40 cents, or 0.4%, higher at $113.49 a barrel.
Oil prices had spent much of the day more than 1.5% higher, lifted by comments from European Central Bank President Mario Draghi, who announced a range of new measures to stimulate Europe's economy.
Futures also got a boost from a government report that showed Hurricane Isaac disrupted domestic oil production last week and imports, sending U.S. stockpiles tumbling.
But futures shed the bulk of their gains during final hours of trading. Many market watchers brushed off the news, calling the inventory drop transitory, while voicing skepticism over the effectiveness of the new ECB measures.
"I was a little skeptical of the whole rally," said Peter Donovan, vice president at Vantage Trading, an oil options brokerage. "A lot of people have put a lot of hope in the ECB plan, but having the whole thing work out is a much bigger issue."
He added: "And as far as inventories were concerned, was anybody not expecting a substantial draw after production came off [following Isaac]?"
U.S. crude stockpiles plunged 7.4 million barrels last week, the biggest one-week drop in inventories since December, according to the closely watched report from the U.S. Energy Information Administration. Traders closely watch the weekly EIA report for cues on supply and demand in the world's biggest oil consumer.
Much of the decline was driven by falling oil imports, which were disrupted after Hurricane Isaac closed down shipping. U.S. oil output fell 12%, to its lowest level in a year, due to precautionary rig shutdowns in the Gulf of Mexico.
"It all had to do with a lot of production shut in," said Tony Rosado, broker at Dorado Energy Services. "The refineries had to get crude from somewhere," so they turned to oil held in storage.
Analysts surveyed by Dow Jones Newswires had expected oil inventories to fall just 5.6 million barrels.
Still, traders and analysts said the steep inventory drop was likely a one-time event as delayed oil shipments are delivered in the coming weeks and production comes back online.
"It depends on what happens in next week's inventory" report, said Dominick Chirichella, analyst at the Energy Management Institute.
Separately, Mr. Draghi announced a range of new measures revolving around the purchase of government bonds. The measures are aimed at stimulating the euro-zone economy, also one of the world's biggest consumers of oil.
But some traders were skeptical over just how effective the ECB will be at aiding the beleaguered currency union. Oil markets had been closely anticipating the speech by the central bank president because uncertainty over the fate of the euro zone has undermined sentiment across markets and curbed expectations for oil demand in the European Union.
"He's just saying there's a safety net," said Carl Larry, president of Oil Outlooks & Opinions, a trading adviser.
Front-month October reformulated gasoline blendstock, or RBOB, settled 4.12 cents, or 1.4%, higher to $2.9910 a gallon. October heating oil settled 2.49 cents, or 0.8%, higher, at $3.1425 a gallon.
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