Oil extends short-covering frenzy to second day, topping $50

Fri Aug 28, 2015 5:34pm EDT
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By Barani Krishnan

NEW YORK (Reuters) - World oil prices roared back to $50 a barrel in the second day of a frenetic short-covering rally on Friday, with violence in Yemen, a storm in the Gulf and refinery outages helping extend the biggest two-day rally in six years.

Oil had tumbled in tandem with stocks over much of the past week, hitting 6-1/2-year lows below $40 a barrel as Chinese financial tumult stoked fears of slowing growth. Oil rallied on Thursday as equities rebounded, but on Friday oil kept pushing higher even as equity markets were calm.

Dealers said a handful of emerging risks fed oil's gains. Warplanes from a Saudi-led coalition killed 10 people in air raids over Yemen; Tropical Storm Erika moved closer to Florida, prompting worries about oil and gas installations in the U.S. Gulf.

Brent, the global oil benchmark LCOc1, closed up $2.49, or 5 percent, at $50.05, after nearly reaching $51 a barrel. It gained 10 percent on the week.

U.S. crude's front-month contract snapped an eight-week losing streak, rising $2.66, or 6.3 percent, to settle at $45.22 a barrel. At its session high, it was up more than $3, or 7 percent at nearly $46. For the week, it rose 12 percent.

"A severely oversold and shorted oil market is creating a bid for covering," said Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland.

U.S. crude's 17 percent gain over the past two sessions was the second largest in 25 years. Yet prices remain at half their year-ago level. Traders noted a lingering global glut of oil supplies, and said the rally was largely fueled by a rush by market players to exit a crowded bearish trade.

Late on Friday, U.S. data showed that big hedge funds had slightly increased their bullish net long bets on U.S. crude in the week through Tuesday. But gross short positions barely dipped, leaving a near record number of bearish bets poised to cover as prices turned higher later in the week.   Continued...

A fuel pump is seen in a car at a gas station in Toronto April 22, 2014. REUTERS/Mark Blinch