The price of oil hovered above $89 a barrel Thursday after U.S. crude supplies dropped more than expected and markets waited to see if the European Central Bank's chief would signal more bold action to overcome the region's debt crisis.
By early afternoon in Europe, benchmark crude was up 21 cents at $89.12 a barrel in electronic trading on the New York Mercantile Exchange.
The contract rose 85 cents to settle at $88.91 in New York on Wednesday after the Energy Information Administration said U.S. oil stockpiles fell by a surprising 6.5 million barrels last week, four times what analysts forecast.
But the decline was mainly due to a drop in crude imports, not to a pick-up in demand for oil. Gasoline supplies also dropped unexpectedly last week, according to the EIA.
"The decrease in crude oil stocks can be explained by the lower crude imports, especially in the Gulf of Mexico, which in the past often reversed a week later," said analysts at Commerzbank in Frankfurt. "This time, however, the effect may prove more lasting, for the high level of U.S. oil production coupled with the outage of the huge Motiva refinery in Port Arthur, Texas, means that there is currently little incentive for higher imports."
In London, Brent crude was up 63 cents at $106.59 on the ICE Futures exchange.
The key event for markets from stocks to currencies and commodities is the ECB's meeting Thursday. The central bank announced it left its key interest rate unchanged, but investors will watch the bank's president, Mario Draghi, at a press conference later for signs of bolder emergency measures. Expectations of strong action to stem Europe's debt crisis have been high since Draghi last week said the ECB would act decisively to keep the euro common currency intact.
The currency union has been increasingly strained by Europe's prolonged debt crisis, which has also dragged on global economic growth. A recent surge in Spain's borrowing costs raised the risk that one of Europe's biggest economies would need a huge bailout that could splinter the common currency.
Some analysts think the ECB may resume buying government bonds to reduce borrowing costs for struggling countries such as Spain and Italy or give a banking license to the European Stability Mechanism. The ESM is a fund set up to provide a financial lifeline to euro nations that face a crisis. Giving it a banking license would greatly increase its firepower.
Still, there are doubts the ECB will deliver on Draghi's bold words because of German resistance to the central bank taking on a role beyond its mandate of keeping inflation under control.
As expected, the Bank of England kept its key lending rate at the all-time low of 0.5 percent on Thursday and announced no new investment in its economic stimulus program. With Britain stuck in recession for the past three quarters, some analysts expect a further shot of stimulus later this year.
In other Nymex futures trading, heating oil was up 0.77cent at $2.8665 a gallon and wholesale gasoline was up 2.75 cents at $2.8617 a gallon. Natural gas dropped 3.4 cents to $3.137 per 1,000 cubic feet.