Oil markets jumped as much as 7 percent on Monday as speculation about falling U.S. shale output and a rally in equities fed the notion that crude prices may be bottoming after their 20-month collapse.
The markets began the week with a rebound in Asian trade, reacting to Friday’s U.S. rig count data, which showed the number of oil drilling rigs in operation falling to a December 2009 low after nine straight weeks of cuts. [RIG/U]
Prices got a further boost after the International Energy Agency, the world’s oil consumer body, said U.S. shale oil production could fall by 600,000 barrels per day (bpd) this year and another 200,000 bpd in 2017.
Higher equity prices on Wall Street also supported oil, as shares of oil companies such as Chevron (CVX.N) rose. [.N]
“For various reasons, traders are growing convinced that the market won’t go much lower,” said Pete Donovan, crude broker at Liquidity Energy in New York.
“This includes the falling U.S. rig count, the output freeze OPEC is trying to achieve with non-OPEC members, the apparent lack of Iranian barrels flooding the market after the sanction lifted against them and the potential for geopolitical stress,” he added, referring to a proposed freeze at January levels by Russia and the Organization of the Petroleum Exporting Countries.
Iraq said it plans to raise oil output levels to more than 7 million bpd over the next five years, and to export 6 million bpd.
U.S. crude futures CLc1 were up $2.07, or 7 percent, at $31.71 a barrel by 11:32 a.m. EST (1632 GMT). U.S. gasoline RBc1 also rose 6 percent.
Bids to narrow the discount between the expiring front-month contract in U.S. crude to the nearby position was also feeding buying, traders said. The March CLH6 contract was nearly $2 lower than April CLJ6, which would be the front-month from Tuesday.