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Crude gains on hopes for ECB bond purchases, Fed stimulus

Published 09/05/2012, 07:53 PM
Updated 09/05/2012, 07:54 PM
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Investing.com - Crude oil futures rose in Asian trading on Thursday as investors took up positions on hopes the European Central Bank will announce plans to buy sovereign debt later Thursday and for the U.S. Federal Reserve to follow through next week by announcing a third round of quantitative easing in the U.S.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in October traded at USD95.78  a barrel on Thursday, up 0.45%, off from a session high of USD96.03 and up from an earlier session low of USD94.28.

Bloomberg reported earlier that the ECB was planning "unlimited sterilized" bond purchases, without setting bond yield targets.

The plan, known as the Monetary Outright Transaction proposal, will involve purchases of on government bonds carrying maturities of up to three years.

Hopes for ECB action sent oil gaining on the notion the policy will prevent the collapse of the large Spanish and Italian economies, which could have seriously crimped demand for fuels and energy.

Also in Europe, eurozone retail sales contracted although in line with expectations, dropping 0.2% in July and bringing the annualized rate of decline to 1.7%.

Elsewhere in the U.S., the Bureau of Labor Statistics reported earlier that non-farm business sector labor productivity rose by a seasonally adjusted 2.2% in the second quarter, outpacing expectations for a 1.8% gain and up from a preliminary estimate of a 1.6% increase.

The report also showed that unit labor costs rose by a seasonally adjusted 1.5% in the second quarter, in line with expectations and down from an initial estimate of a 1.7% increase.

The U.S. will release its August jobs report on Friday and talk is building the numbers may be soft enough to prompt the Fed to announce a third round of quantitative easing to jolt the economy.

The Federal Reserve will hold its monetary policy meeting next week.

Under quantitative easing, the Fed buys assets such as Treasury holdings or mortgage-backed securities from banks, pumping the financial system full of liquidity to push down interest rates and encourage investing and hiring.

Such accommodative policies tend to weaken the dollar by design and send commodities prices rising, especially oil, which shoots up on hopes for sustained demand that comes from a jolted economy and also due to a weaker dollar, which makes the commodity a nicely-priced asset in the eyes of investors holding other currencies.

On the ICE Futures Exchange, Brent oil futures for October delivery were up 0.42% and trading at USD113.78 a barrel, up USD18.00 from its U.S. counterpart.









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