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 In a rally that may spur speculation that a seven-month price
collapse has ended, global benchmark Brent crude shot up to more
than $53 per barrel, its highest in more than three weeks in its
biggest one-day gain since 2009.
The late-session surge was primed by Baker Hughes data showing the
number of rigs drilling for oil in the United States fell by 94 - or
7 percent - this week. Earlier gains were fueled by reports of
Islamic State militants striking at Kurdish forces southwest of the
oil-rich city of Kirkuk.
Brent <LCOc1> settled up $3.86 at $52.99 a barrel, after running to
as high as $53.08.
U.S. <CLc1> oil futures finished up $3.71 at $48.24, soaring by
nearly $3 in a final frenzied hour and ending a two-week stretch of
relatively steady prices, the longest break since a seven-month rout
kicked off last summer. On Thursday prices had touched a six-year
low under $44 a barrel.
Poised for a bounce many thought was overdue, short traders raced to
cover their positions on fears that the rout, sparked by massive
U.S. shale crude supplies, was nearing its end.
"The rig count drop was a lot more than people expected and it
really got the market going," said Phil Flynn, analyst at Price
Futures Group in Chicago.
According to Baker Hughes, the decline in oil drilling rigs was the
most since it began keeping records in 1987. With drillers having
idled about 24 percent of their oil drilling rigs since the summer,
some traders may be betting that an anticipated slowdown in U.S. oil
production is nearer than expected.
NOT OVER YET?
Some are not convinced that the sell-off in oil is over. The rout
began in June when Brent peaked at over $115 a barrel and
accelerated in November after OPEC refused to cut its production.
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"There was a lot of short-covering before the month end from people
wanting to take profit from the $40-odd lows, so it's not surprising
that we rallied," said Tariq Zahir, managing member at Tyche Capital
Advisors in Laurel Hollow in New York. But it will take a while for
production to respond to lower drilling.
"This doesn't change the fundamental outlook in oil. We are still
about 2 million barrels oversupplied."
Production from OPEC, or the Organization of the Petroleum Exporting
Countries, rose in January to 30.37 million barrels per day (bpd), a
Reuters poll showed, a sign that key members of the group were
resolute about defending their market share.
A Reuters poll shows oil prices may post only a mild recovery in the
second half of the year, with prices still averaging less in 2015
than during the global financial crisis. <OILPOLL>
Joseph Posillico, senior vice president of energy futures at
Jefferies in New York, also warned of a short-term, short-covering
rally that could be quickly reversed.
"This is just the market being the market and we could give these
all back in the next few sessions."
(Additional reporting by Ron Bousso in London and Henning Gloystein
in Singapore; Editing by Jason Neely, John Stonestreet, Bernadette
Baum, Gunna Dickson and Lisa Shumaker)
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