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Brent steady at $114 on caution ahead of ECB meeting, growth woes

BRENT CRUDE OIL

Investors scale down expectations from ECB meeting; Weak US manufacturing data adds to jitters

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September 5, 2012 10:08 by



Brent crude steadied at $114 a barrel on Wednesday after a bout of profit-booking ahead of a keenly awaited European Central Bank meeting and as global growth concerns deterred buyers.

Those worries were heightened by a slew of disappointing data from the United States, while investors also began to scale down expectations of radical action from ECB Chairman Mario Draghi at Thursday’s meeting.

“The market is taking a reality check ahead of the ECB meeting; the expectation is that Draghi won’t do anything drastic and what we’ll probably get is a lot of jaw-boning,” said Ben Le Brun, a market analyst at OptionsXpress in Sydney.

Brent crude slipped 11 cents to $114.07 a barrel at 0301 GMT, after dropping to $113.91 earlier in the session.

U.S. crude futures rose 7 cents to $95.37 per barrel staying below its 200-day moving average of $96.65.

Investors are now eyeing Friday’s crucial U.S. jobs data for clues on the health of the world’s top economy.

The United States has been struggling to add jobs now some three after the brutal recession ended and another soft report would strengthen the case for more easing, or QE3, from the Federal Reserve when it next meets in mid-September.

“We also have the Fed meeting coming up, so there are a few event risks on the horizon and what we’re seeing is some profit-taking ahead of that,” Le Brun said.

 

ECONOMIC WORRIES

Worries about economic growth moved centre stage after data showed that U.S. manufacturing shrank at its sharpest clip in more than three years last month, while separate releases showed exports and hiring in the sector also slumped.

The next big test of U.S. economic health will be the August unemployment data on Friday. The median forecast of economists polled by Reuters is for a gain of 120,000 jobs, down from 163,000 in July.

The data is crucial as Fed Chairman Ben Bernanke in a speech at a Fed symposium last week said the weak job market and an 8.3 percent unemployment rate was a “grave concern.”

Investors were also paring expectations from the ECB’s Thursday meeting, after driving markets higher on hopes it will detail a bond-buying plan to help out its crisis-ridden members.

Germany’s Constitutional Court will rule on Sept. 12 whether the euro zone’s permanent bailout fund is compatible with German law, and realization is sinking in that the ECB may not be able to do anything significant until then.

Hopes for ECB bond buying had been raised on Monday after Draghi said that short-term sovereign bond purchases would not breach European Union (EU) rules.

 

RESERVES DEBATE

Investors are also closely watching a debate on the release of strategic petroleum reserves to rein in prices and enhance the effectiveness of the U.S. and EU sanctions on Iran for its disputed nuclear programme.

“Crude markets are reasonably well supplied but there are clearly signs of tightening in product markets,” IEA Executive Director Maria van der Hoeven said in response to questions over a possible release of emergency stocks.

The U.S., U.K. and France are in favour of releasing stocks, while Germany and Italy remain opposed.

The markets will also be watching for the weekly U.S. oil inventory data due later on Wednesday.

A survey of six analysts, ahead of weekly inventory reports from industry group American Petroleum Institute and the U.S. Energy Information Administration, forecast that crude stocks would drop 5.3 million barrels on average for the week ended Aug. 31. (Editing by Himani Sarkar)



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