Bloomberg News

Oil Climbs After ECB Announces Plan to Lend Dollars to Banks

September 15, 2011

Sept. 15 (Bloomberg) -- Crude oil increased after the European Central Bank announced it will lend euro-area banks dollars to help tame the region’s credit crisis.

Futures rose 0.6 percent after the Frankfurt-based ECB said it would coordinate the action with the Federal Reserve, the Bank of England, the Bank of Japan and the Swiss National Bank. Oil also climbed when German and French leaders said they’re certain Greece will stay in the euro zone, curbing concern that the region’s debt crisis will reduce fuel demand.

“The market is highly reactive to the ebb and flow of headlines about the euro-zone debt crisis,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “This should strengthen the euro, reduce the need for the dollar as a safe haven and put us in commodity rally mode again.”

Crude oil for October delivery rose 49 cents to settle at $89.40 a barrel on the New York Mercantile Exchange. Prices are up 18 percent over the past year.

Brent oil for October settlement climbed $2.94, or 2.6 percent, to end the session at $115.34 on the London-based ICE Futures Europe exchange. The contract expires today. The more active November future was up $2.65, or 2.4 percent, to settle at $112.30.

The European benchmark contract was at premium of $25.94 to U.S. futures, compared with a record $26.87 on Sept. 6, based on settlement prices.

Dollar Declines

The dollar dropped 0.9 percent to $1.3884 against the euro from $1.3755 yesterday. A weaker U.S. currency increases the appeal of dollar-denominated raw materials as an investment. The Standard & Poor’s 500 Index rose 1.7 percent to 1,209.11 and the Dow Jones Industrial Average gained 1.7 percent to 11,433.18 at 4:19 p.m. in New York.

The ECB loans are in addition to the bank’s regular seven- day dollar offerings and will be conducted as fixed-rate tenders with full allotment, the ECB said in a statement today. It will offer the loans on Oct. 12, Nov. 9 and Dec. 7.

Industrial production in the U.S. unexpectedly rose in August, signaling manufacturing will support the economy of the world’s biggest oil-consuming country. Output at factories, mines and utilities climbed 0.2 percent after a 0.9 percent gain in July, figures from the Federal Reserve showed today. Economists surveyed by Bloomberg News had forecast no change.

U.S. prices dropped earlier when reports showed applications for unemployment benefits rose last week to the highest level since the end of June and manufacturing in the New York and Philadelphia areas contracted. Jobless claims climbed by 11,000 to 428,000 in the week ended Sept. 10 that included the Labor Day holiday, figures from the Labor Department showed.

‘Slightly Better Outlook’

“The slightly better outlook in Europe is lending the markets some support,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “We got the first of what may be a long series of negative headlines about the U.S. economy this morning.”

The Fed Bank of New York’s Empire State Index dropped to minus 8.8, the weakest reading since November, from minus 7.7 in August, the branch of the central bank said. The Federal Reserve Bank of Philadelphia’s general economic index improved to minus 17.5 from minus 30.7 last month. Readings less than zero signal companies are cutting back.

“The weekly jobs number was poor and the Empire State Index was terrible,” Kilduff said. “The economic data series continue to deteriorate, and that probably won’t change anytime soon. News from the euro-zone is more important to the market, at least for today.”

Euro Region Growth

The 17-nation euro region will expand 0.2 percent in the third quarter and 0.1 percent in the fourth, down from an estimate in March for 0.4 percent expansion in both periods, the European Commission in Brussels said today.

Libya, the nation that holds Africa’s largest oil reserves, will resume partial crude exports within three or four days, the nation’s representative to a meeting of Arab central bank governors in Doha said. The country will produce about 700,000 barrels a day by the end of this year and an estimated 1.6 million barrels a day by the end of 2012, Abdulla Saudi said.

Libyan Exports

Libyan oil exports plummeted as fighting raged between rebel forces and troops loyal to Muammar Qaddafi. Output fell to 45,000 barrels a day in August, the lowest level since at least January 1989, according to a Bloomberg News survey. The country pumped 1.585 million barrels a day in January, the last month before an uprising.

Rebel forces in Libya said today they captured Sirte, Qaddafi’s birthplace and one of the last holdouts of his loyalist troops. After an all day battle, the rebels announced they controlled all entrances to the city.

The International Energy Agency, which advises 28 industrialized nations on energy policy, said today it has terminated a program of releases from emergency reserves to make up for the halt of exports from Libya.

Oil volume in electronic trading on the Nymex was 584,191 contracts as of 4:25 p.m. in New York. Volume totaled 739,866 contracts yesterday. Open interest was 1.45 million contracts.

--With assistance from Robert Tuttle in Doha, Qatar. Editors: Richard Stubbe, Dan Stets

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.


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