Oil prices post surprise recovery of 8% on Friday
Oil prices suddenly spiked more than 8 percent on Friday, in the biggest one day price move for the volatile commodity in nearly three years.
The sharp rise came in the final 45 minutes of the trading day, with the West Texas Intermediate benchmark rising just over USD 3.71 to USD 48.24 a barrel and the global Brent benchmark climbed USD 3.86 or 7.9% to USD 52.99 a barrel on the ICE Futures Europe exchange, posting its largest percentage gain since April 2009.
The sudden move up could be explained by various factors, including reports that the Islamic State terrorist group was advancing in an offensive near Iraq’s northern oil fields and largest weekly drop in rig count in USA.
ISIS militants have attacked Kirkuk in northern Iraq, an effort that might be an earnest attempt to capture the key oil rich city causig disruption in supply chain
Simaltaneously Baker Hughes service company reported that US’s rig count had dropped by 94 or 7% in Week05, the largest weekly drop since the late 1980s. That leaves 1,223 rigs in operation, the lowest number in three years and it is estimated another 300 rigs could be decommissioned in the next few months as service contracts expire.
Before Friday’s rally, US and global oil benchmarks were down nearly 60% in the last seven months, as surging production from the US, Iraq and Libya overwhelmed tepid demand amid slowing global economic growth and as OPEC kept output steady in a bid to defend its market share.
Surprisingly, oil price rally came against a backdrop of otherwise bearish supply and demand fundamentals and macroeconomic indicators on Friday, including a continued widening gap between production and consumption for oil from the OPEC and a weaker than expected reading on fourth quarter US economic growth.
Indeed, many analysts believe oil prices have further to fall as global production continues to outpace demand through the first half of this year.
Source - Strategic Research Institute