World Bulletin/News Desk
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 day's sharp gains, both international benchmark Brent and U.S. oil futures posted their biggest quarterly declines since the fourth quarter of 2008.
On the day Brent crude oil futures rose more than $6 a barrel to near $98 while U.S. crude jumped by more than $7 to settle just below $85 a barrel -- the fourth largest daily gains in dollar terms since the contracts were launched.
Oil rallied along with the euro and world stocks 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 worries euro zone, 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.
Brent volume was almost 16 percent above the 30-day average, while U.S. crude futures saw turnover 29 percent above the 30-day average.
Front-month U.S. July RBOB gasoline rallied 4.3 percent while heating oil surged 5.7 percent. Both contracts expired on Friday.
Analysts said Friday's move could portend better fundamentals for oil for the rest of the year as sanctions against Iran cut the OPEC member's output.
"Given it's the last day of the quarter we might be seeing some rebalancing and short-covering (by funds) after the falls we've seen," said Katherine Spector, commodity strategist at the Canadian Imperial Bank of Commerce in New York.
"The supply-and-demand balance looks better for the second half of this year, so we expect to see prices move higher from here. We think there will be further reductions in Iran's exports and at the same time other OPEC members are likely to reign in production slightly."
OPEC's oil output has remained close to its highest since 2008 in June as extra oil from Saudi Arabia and Iraq has compensated for a drop in Iranian supply to its lowest level in more than two decades, a Reuters survey found on Friday.
Saudi Arabia, OPEC's largest producer, has increased its output to 10.1 million bpd to help make up for the shortfall from Iran.
According to the ratings agency Moody’s, Iran is fiscally and structurally well placed to come back into the global economic scene
PM Davutoglu meets the heads of the world's largest companies as he promotes Turkish economic interests at World Economic Forum
Fund cuts global growth forecasts for both 2016 and 2017 by 0.2 percentage points
'Runaway inequality has created a world where 62 people own as much wealth as the poorest half of the world’s population'
At a meeting in Vienna on Friday, the Organization of the Petroleum Exporting Countries decided against cutting output to raise prices
OPEC has agreed to raise its output ceiling to 31.5 million barrels per day
OPEC's poorer nations, led by Venezuela, want a cut to help boost prices
Move gives international recognition to renminbi, fund's Christine Lagarde says
Summit is expected to provide member states with opportunity to consult, exchange views on the most important issues concerning them in the framework of the Gas Exporting Countries Forum
Slowdown in Chinese economy, rising oil stocks in US, and oversupply from OPEC are all factors making price of oil lower
'World is more connected than ever before. More and more developing countries are seeking to join global trade networks,' WTO director-general says
European Central Bank is ready to use ‘all instruments available’ to stimulate the eurozone economy, Draghi says
Kazakhstan has overtaken Australia as the lead supplier of uranium for US reactors.
Depreciation of emerging market currencies, combined with low commodities prices, have made investors around the globe nervous