LONDON: Brent crude oil fell towards $48 a barrel on Thursday after the European Central Bank said it would start buying government bonds, a move which could push the dollar to new highs against the euro and put downward pressure on commodities.
Exceeding market expectations, ECB President Mario Draghi said the bank would buy 60 billion euros ($69 billion) of government bonds a month until the end of September 2016 to support the flagging euro zone economy.
Prices extended losses after data from the US government's Energy Information Administration showed a sharp 10.07 million barrel rise in crude stocks in the United States last week, far more than the market expected, including a 2.91 million barrel rise at Cushing, Oklahoma, delivery point of the US crude contract.
The national build was the largest since 2001, while stocks in the Midwest rose by the biggest amount in at least 25 years. Brent crude futures traded at $48.26 a barrel by 1603 GMT, down 77 cents. US crude was down $1.31 at $46.47. Earlier in the session, Brent had reached a high of $50.45, up $1.42.
"The ECB bond buying programme was larger than expected," said Olivier Jakob, oil analyst at Petromatrix in Zug, Switzerland. "But it was largely priced in." Jakob said the ECB decision would put further pressure on oil prices which have already more than halved since June last year due to oversupply in world markets.
"Long term it is going to be positive for the dollar so negative for oil. The question then is, at the current oil price, can the dollar push oil even lower?" Expectations for the stimulus programme have pressured the euro and sent the dollar, seen as a safe haven, soaring.
A strong dollar, buoyed by an expected US interest rate hike and a US economy that is growing while Europe and Asia slow, dents demand for dollar-priced commodities by making them expensive for holders of other currencies.
In a market structure known as a contango, Brent crude prices for delivery this March are $10 a barrel cheaper than those for March 2016, making it attractive to buy oil now and put it into storage for sale later, traders say.
Energy Aspects oil analyst Virendra Chauhan said prices were likely to recover in the second half of 2015. "I think you will start seeing the effect of lower supplies from Q2 15," Chauhan told the Reuters Global Oil Forum. "Overall, we think that, led by Asia, global oil demand has started to pick up."
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