Oil fell below $49 after ECB declares bond buying
Brent crude oil prices dropped below $49 a barrel on Thursday following the European Central Bank (ECB) announced it would start buying government bonds, a progress that could drive the dollar to new highs and push downward pressure on commodities.
Beyond market expectations, ECB President Mario Draghi declared the bank would buy 60 billion euro ($69.34 billion) of government bonds a month until the end of September 2016 to support the failing euro zone economy.
Brent crude futures traded at $48.85 a barrel by 14:15 GMT, down 18 cents. U.S. crude fell 48 cents at $47.30. Earlier in the session, Brent had reached a high of $50.45, up $1.42.
“The ECB bond buying program was greater than predictable,” said Olivier Jakob, oil analyst at Petromatrix in Zug, Switzerland. “It was mostly priced in.”
Jakob also said the ECB decision would put extra pressure on oil prices which have already more than halved since June last year because of oversupply in world markets:
“Long term it is going to be supportive for the dollar so depressing for oil. The question 0then is, at the current oil price, can the dollar drive oil even lower?”
Expectations for the stimulus program have forced the euro and sent the dollar, seen as a safe haven, soaring.
A strong dollar, buoyed by an expected U.S. interest rate climb and an American wealth that is growing although Europe and Asia slow, hollows demand for dollar-priced commodities by making them costly for holders of other currencies.
Energy Aspects oil analyst Virendra Chauhan said prices were expected to rise in the second half of 2015 and inferior supply fuels global demand.
“I assume you will start seeing the result of lower supplies from Q2 15,” Chauhan told Reuters Global Oil Forum. “Generally, we believe that, led by Asia, global oil demand has (already) started to pick up.”
Analysts are expecting U.S. crude stocks to have improved by approximately 2.6 million barrels in the last week, further substandard oil prices. Records from the U.S. Department of Energy’s (DOE) Energy Information Administration (EIA) will be published at 1600 GMT Thursday.