US oil prices post biggest rise on percentage basis since 2009
Published on Fri, 28 Aug 2015 37 times viewed
The Wall Street Journal reported that US oil prices soared 10% on Thursday, as a rally in Chinese and U.S. stocks and better-than-expected U.S. economic data prompted a rush by traders to bail out of bearish bets that the market would fall.
Traders and analysts at hedge funds, banks and brokerages said supply-and-demand conditions in the oil market remained weak and there appeared to be little fundamental justification for such a strong rally, or expectations of more price gains in the near future. Rather, they said, it appeared to be set off as investors with so-called short positions that profit from falling prices closed those bets out as the market turned against them.
Investors have been getting increasingly bearish on crude amid surging global supply and new questions about demand from China, the world’s 2nd-largest oil consumer, amid slowing economic growth, a slumping stock market and a move by its central government to devalue its currency.
Raw materials with the greatest dependency for demand growth on China have been battered the worst, and saw some of the largest gains on Thursday, with copper prices posting their largest gain in percentage terms in more than two years and sugar prices staging their biggest single-day rally in more than a year. The Bloomberg Commodity Index was up 3% Thursday, its largest gain in more than three years.
Bets by financial investors in the market that oil prices will fall were at their highest level since early April, according to the most recent data last week from the U.S. Commodity Futures Trading Commission.
Investors who added to bearish bets recently as the market fell to new lows are the quickest to bail out when prices recover.
Mr Anuraag Shah said that “Today’s move, while it seems spectacular, is nothing more than short-covering, portfolio manager of the USD 130 million Los Angeles hedge fund Tusker Capital, which bet against oil earlier in the summer but is now neutral on the market. It’s people getting washed out.”
Some also said the price move appeared to be exacerbated by thin trading in the market, with contract volume less than 30% of recent averages. And they pointed out that even with Thursday’s rally, the market has only recovered to its level a week ago.
Ms Katrina Lamb, head of investment strategy and research at asset manager MV Financial said that “Any time you have a rebound like this one or two days after a cataclysmic, broad-based selloff, you have to take it with a grain of salt.”
The benchmark US contract rose USD 3.96 or 10.3%, to settle at USD 42.56 a barrel. In percentage terms, it was the largest gain since March 12, 2009, though that has become amplified as prices have fallen. In dollar terms, it was the largest gain in three years. The market rose early after settling near six-year lows the day before, but gained steam throughout the day and added to the surge in the last half-hour of trading.
The global Brent contract also jumped, finishing up USD 4.42, or 10.3%, to USD 47.56 a barrel on the ICE Futures Europe exchange. It was the largest one-day dollar gain in three years and the largest percentage gain since December 31st 2008.
Source : The Wall Street Journal