Oil soars over 10 percent, biggest gain in six years as shorts scramble
By Barani Krishnan and Jonathan Leff
NEW YORK (Reuters) - Oil rocketed more than 10 percent higher on Thursday, posting its biggest one-day rally in over six years as recovering equity markets and news of diminished crude supplies set off a short-covering scramble by bearish traders.
Snapping back from a deep two-month slump that knocked U.S. crude to 6-1/2 year lows below $40 this week, oil climbed as world stock markets rose on hopes Chinese government measures to stimulate the economy would pay off, while the dollar strengthened as risk aversion eased.
The rally was aided by news of a force majeure on Nigerian oil exports declared by Shell (RDSa.L: Quote) and private data indicating more drawdowns in crude this week at Cushing, Oklahoma, traders said. A big upward revision in second quarter U.S. economic growth helped.
Front month Brent crude LCOc1 for October more than reversed a week's worth of losses, rising $4.42 to settle at $47.56 a barrel, marking a 10.25 percent rise. Gains accelerated toward the close, locking in the biggest one-day jump since late 2008, when prices were bouncing back after the financial crisis. The contract traded on Monday at a March 2009 low of $42.23.
"Whenever you have a short-covering rally in a bear market they’re always violent. I wouldn't be surprised to see it continue another day or two," said Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow, New York. As buying pressure eases, prices may test new lows, he added.
That proved somewhat true in Thursday's post-settlement trade, when oil came off its highs, tracking a volatile U.S. stock market prior to Wall Street's close. Brent briefly gave back more than $1 from its settlement price before recouping all of it later.
U.S. crude CLc1 settled up $3.96, or 10.3 percent, at $42.56 per barrel, its biggest one-day percent gain since March 2009. It had hit a February 2009 low of $37.75 on Monday.
There were signs that Thursday's rally, while extreme, may not be long-lasting, traders said. Inter-month spreads, often a good indicator of physical market conditions, weakened on the day, while turnover was high but not extreme. Front-month Brent crude traded just over 315,000 lots, the most since early July but a quarter less than early February highs. Continued...