Oil prices roared back from six-year lows on Friday, rocketing more than eight per cent as a record weekly decline in US oil drilling fuelled a frenzy of short-covering.
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 (€47) per barrel, its highest in more than three weeks and 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 US fell by 94 – or seven per cent – last week.
Earlier gains were fuelled by reports of Islamic State militants striking at Kurdish forces southwest of the oil-rich city of Kirkuk.
Brent settled up $3.86 at $52.99 a barrel, after running to as high as $53.08.
US oil futures ended 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 (€39) 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 US 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 per cent of their oil drilling rigs since the summer, some traders may be betting that an anticipated slowdown in US oil production is nearer than expected.
Some are not convinced that the sell-off in oil is over.
“It will take a while for production to respond to lower drilling,” siad Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow in New York.
“This doesn’t change the fundamental outlook in oil. We are still about two million barrels oversupplied.”
Production from OPEC, the Organisation 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.