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Crude Oil Tumbles While Natural Gas Climbs On Stimulus

By:
Barry Norman
Updated: Aug 21, 2015, 15:00 UTC

WTI crude oil ended below $94 a barrel yesterday, as comments from the European Central Bank’s Draghi about downside risks to the region’s economic

Crude Oil Tumbles While Natural Gas Climbs On Stimulus
Crude Oil Tumbles While Natural Gas Climbs on Stimulus
Crude Oil Tumbles While Natural Gas Climbs on Stimulus

WTI crude oil ended below $94 a barrel yesterday, as comments from the European Central Bank’s Draghi about downside risks to the region’s economic recovery raised worries about energy demand. Draghi also commented that the eurozone recovery might be delayed longer than expected. Prices also fell ahead of the nonfarm payrolls report due Friday, which will be scoured for hints on the progress of recovery in the U.S. Crude oil is trading at 93.33 this morning as the Asian session is ending. Prices, which closed at their lowest level since March 21, have now tallied a two-session loss of 4.1%.

Wednesday’s EIA inventory report seemed to be “the straw that broke the camel’s back for this recent rally” in oil. Followed by Thursday’s poor jobless-claims data — on the back of Wednesday’s lackluster ADP private payroll report and ahead of nonfarm payrolls due later today — combined with downbeat comments” from European Central Bank President Mario Draghi sent crude lower. At the ECB’s monthly news conference, Draghi acknowledged that the recovery in the second half of the year is still at risk of being thrown off course.

Weakness in oil prices have also come on the back of rising global crude-oil production, a climb in U.S. refinery utilization rates and lackluster demand for transportation fuels. The Energy Information Administration reported on Wednesday U.S. refinery utilization of 84.1% of capacity for the week ended March 29, up from 83.1% a week earlier. The current level of oil prices is not harmful to the global economy and on the contrary supports energy investments, the secretary general of oil exporting group OPEC said on Thursday. Saudi Oil Minister Ali Al-Naimi has put Asian refiners’ money where his mouth is by raising the price of crude cargoes for May delivery.

The huge stimulus program unveiled yesterday by the Bank of Japan did little to help support crude oil prices. Japan is one of the largest importers of energy products since the tsunami damaged its nuclear plants. In the first policy meeting under Gov. Haruhiko Kuroda, who has pledged to fight long-running deflation in Japan, the central bank vowed to achieve a 2% inflation target in 2-years. It also delivered a radical overhaul of policy with a new base money target and a sharp increase in asset buying. The central bank said it would increase its Japanese government bond holdings at an annual pace of ¥50 trillion ($530bn), with JGB holdings to double in 2-years.

Natural gas climbed for the first time in 5-days, after a government report showed that US stockpiles were at a deficit to the 5-year average for the first time in 18-months. The US EIA report showed inventories fell 94bn cubic feet in the week ended March 29 to 1.687 trillion cubic feet, the biggest decline on record for this time of year. Supplies were 2.1% below the 5-year average. Natural gas has gained 18 pips this morning to trade at 3.965 supported by Japanese stimulus programs introduced yesterday.

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