Oil prices settled higher but well off the day's peaks on Thursday, supported by a drop in US crude oil inventories, strong jobs data and the European Central Bank's announcement of a bond buying program. Brent and US crude prices faded ahead of settlement and turned negative in post-settlement trading. US crude stocks fell 7.43 million barrels last week, the Energy Information Administration said in its weekly report.
The drop was not a surprise, with imports and Gulf of Mexico production disrupted last week by Hurricane Isaac, but the drop was more than the forecasted 5.3-million barrel drop. "The drawdown in crude stocks was a one-time event due to Isaac and there was no damage done to the Gulf infrastructure so the inventory report was written off, and then I think the market digested the ECB bond issue and it doesn't seem to be as much of a game changer ...," said Gene McGillian, analyst at Tradition Energy.
The European Central Bank agreed to launch a new and potentially unlimited bond-buying program, its latest attempt to address the region's debt crisis and reduce borrowing costs for struggling euro zone countries. Payrolls processor ADP said the US private sector added the most jobs in August since March and a separate report from the government showed jobless claims fell last week, fuelling a Wall Street rally that sent the S&P 500 Index of US equities to its highest since May 2008.
If the ADP figures foretell a strong US August nonfarm payrolls report, set for release on Friday, it could strengthen the dollar and quash the case for a third round of monetary easing, also known as quantitative easing (QE3), by the Federal Reserve. Brent October crude rose 40 cents to settle at $113.49 a barrel, after reaching $115.15. Brent slumped below $113 a barrel in choppy post-settlement trading.
Brent and US crude prices gained more than 9 percent in August on sensitivity to a maintenance-related drop in North Sea production set for September and ongoing Middle East turmoil helped front-month Brent hit a three-month peak at $117.03 on August 16. US October crude edged up 17 cents to settle at $95.53 a barrel, back under the 200-day moving average of $96.63. It earlier reached $97.71, a penny below the August 27 intraday high.
Crude posted lows for the day under $95 in post-settlement trading. "Crude is tired and with the strong ADP jobs numbers, if tomorrow's (jobs report) comes in strong that might strengthen the dollar and make another round of stimulus unlikely," said Mark Waggoner, president at Excel Futures Inc.
The euro hit a two-month peak against the US dollar in choppy trading after the ECB unveiled its new and potentially unlimited bond-buying program to stem the euro zone debt crisis. Total crude trading volumes were 33 percent above the 30-day average for Brent and US crude. US gasoline futures rose more than 1 percent to settle at $2.9910 a gallon, after pushing back above $3 intraday. Heating oil gained 0.8 percent.
Gasoline stocks fell 2.33 million barrels, less than forecast, and distillate stocks rose nearly a million barrels, against a forecast that they would be lower. Energy production restarts continued in the Gulf of Mexico after Hurricane Isaac. US regulators said 42.98 percent of daily oil production and 21.28 percent of daily natural gas output in US-regulated areas of the Gulf of Mexico remained shut on Thursday, an improvement of 6.35 percentage points for oil and 4.43 percentage points for natural gas.
The possibility of a release of strategic petroleum reserves by the United States, or in a co-ordinated release with the International Energy Agency, helped keep oil's surge in check. The West's dispute with Iran over Tehran's nuclear program continued to simmer and remained supportive to oil prices. Russia warned Israel and the United States that an attack on Iran would be "literally disastrous for regional stability," saying Moscow sees no evidence that Tehran's nuclear program is aimed at developing weapons.