Oil surged on Friday in heavy trading to the fourth biggest daily gain on record, as a deal by European leaders to shore up euro zone banks triggered frantic short-covering by funds that had been riding crude’s price collapse over the last quarter.Despite the sharp gains, both international benchmark Brent and U.S. oil futures posted their biggest quarterly declines since the fourth quarter of 2008 due to weak demand, ample supply and economic worries. Oil’s gains for the day came as part of a wider market rally, with the euro and world stocks rising after euro zone leaders agreed on measures to cut soaring borrowing costs in Italy and Spain and recapitalize regional banks.
Crude drew further support from a strike in Norway that cut production of oil and natural gas liquids by 230,000 to 250,000 barrels per day, or up to 13 percent of the capacity of the world’s No. 8 crude exporter. “The NYMEX just went wild. It never looked back. Just up, up and away.” said John Troland, an independent energy advisor in Houston, referring to the New York Mercantile Exchange where benchmark U.S. crude oil futures trade. Throughout the second quarter, hedge funds and other speculators had bet big on lower oil prices. Speculators cut their net long positions by more than half over the quarter, according to data from the U.S. Commodity Futures Trading Commission.
In addition to mounting euro zone worries, oil prices came under pressure in recent months from weaker demand and swelling global inventories as Saudi Arabia boosted output to quell concern about the drop in exports from sanction-hit Iran.”We had significant second-quarter trends that may all be in the process of reversing, including the risk off trade triggered by the EU instability,” said Tim Evans, energy analyst for Citi Futures Perspective, adding oil demand is normally seasonally stronger in the second half of the year. “What has changed today is the market sentiment, the fundamentals may evolve at a more glacial pace.”
Brent crude oil rose $6.44 to settle at $97.80 a barrel, a gain of 7.05 percent and the biggest one day rise since April 2009. Brent started the second-quarter at $122 a barrel.U.S. crude rose $7.27 to settle at $84.96 a barrel, a gain of 9.36 percent – the biggest since March 2009. U.S. crude started the second-quarter at $103 a barrel.