As speculations regarding central bank stimulus action soared, so did oil, which rose to its highest in over a week in New York trading on Tuesday.
Futures rose by 0.9 percent since the close at the end of August, though prices overall are roughly 2 percent lower this year. Oil for October delivery increased to $97.37 per barrel, and Brent oil for October rose by 44 cents to hit $116.22 per barrel on London’s ICE Futures. Brent’s premium versus West Texas Intermediate gap broadened to its widest since mid-August, at $19.32.
ECB President Mario Draghi had previously stated that he would consider buying three-year government bonds in order to reduce borrowing costs for financially struggling nations. On September 6, the ECB holds its policy meeting, while the U.S. Energy Department will publish its weekly update for oil stocks and demand. In general, sentiment from both Europe’s Central Bank and the U.S. Fed has indicated that further stimulus action is something they will seriously consider in short order.
“The ECB will obtain a broader mandate over time,” said Hakan Kocayusufpasaoglu, chief investment officer at Archbridge Capital in Zug, Switzerland, who correctly predicted in May that oil prices would recover. “All commodity-related assets, and especially the ones with tight supply-demand balances will rally” as a result of central bank action.
Over here in the U.S., Labor Day signaled the end of the summer driving season, the period when gasoline demand peaks. Roughly 58 percent of oil output and 39 percent of natural gas output from the Gulf of Mexico continues to be stalled due to Hurricane Isaac. Daily crude capacity dropped by almost 95 percent last week as Isaac swept through the Gulf.