Oil Slips on Surprise ECB Rate Cut

Crude oil futures traded lower on Thursday after a surprise rate cut from the European Central Bank boosted the dollar and hit commodities priced in the U.S. currency.

The ECB cut interest rates to a record low, unexpectedly bringing borrowing costs close to zero to lift inflation from rock-bottom levels and support the stagnating euro zone economy.

The move prompted the euro to fall to its lowest in more than a year against the dollar.

"A stronger dollar is hitting crude futures today, somewhat diminishing the positive broader market impact from the surprise ECB rate cut," Andrey Kryuchenkov, an analyst at VTB Capital, said.

The losses, however, were limited by a drop in U.S. crude oil inventories, with data from the U.S. Energy Information Administration (EIA) showing a 905,000-barrel fall last week. U.S. gasoline stocks dropped 2.3 million barrels.

"The report is mildly supportive, due mostly to the large gasoline inventory drawdown," said John Kilduff, a partner at Again Capital LLC in New York.

"The improving economic conditions and lower retail prices for gasoline are having an effect. Gasoline demand remains strong as a result."

U.S. crude for October delivery fell $1.09 on the day to settle at $94.45 a barrel while international Brent fell 94 cents to settle at $101.83 a barrel.

Prices were also weaker as the market anticipates the start of peak maintenance season at major U.S. refineries in October, according to Andrew Lipow, president of Lipow Oil Associates in Houston, Texas.

"The market is looking ahead to a very heavy refinery maintenance season on the Gulf Coast," he said. "The refiners will need less crude. At the same time, North American crude production continues to grow."

EIA data showed that crude stocks at the Cushing, Oklahoma, delivery point of the U.S. crude contract, were down 385,000 barrels.

U.S. crude underperformed Brent as East Coast refiners are finding it harder to take crude from the Bakken shale area due to railway maintenance, making the oil more likely to head to Cushing.

Additionally, the Seaway crude oil pipeline connecting Cushing to refiners on the Gulf Coast has been shut since Aug. 31, further backing up stocks at the key storage sight.

Investors will be watching nonfarm payrolls data on Friday for further clues on the outlook for the U.S. economy.

Oil futures on both sides of the Atlantic have seen sharp swings, buffeted by moves in the dollar and hopes that peace talks in Ukraine may brighten the demand outlook in Europe.

Further swings are likely due to the lack of clarity on the situation in Ukraine and the prospects for economic growth, said Olivier Jakob at Petromatrix in Zug, Switzerland.

(By Catherine Ngai; Additional reporting by Simon Falush and David Sheppard in London, Robert Gibbons in New York, and Jacob Gronolt-Pedersen in Singapore; Editing by Marguerita Choy and Tom Brown)