U.S. crude jumped 6 percent on Aug. 28 as a rally in gasoline prices and air raids in Yemen prompted traders to scramble for a second day to cover short positions, while market players also kept an eye on a storm that appeared to be approaching the oil-rich U.S. Gulf.
U.S. crude has gained about 16 percent over two sessions, headed for its first weekly rise since mid-June. If the day's gains stick, it would be the second largest two-day rise in 25 years.
"A severely oversold and shorted oil market is creating a bid for covering in U.S. crude," said Chris Jarvis, analyst at Caprock Risk Management in Frederick, Maryland.
U.S. crude's front-month was up $2.60, or 6.1 percent, at $45.16 a barrel by 11:38 a.m. EDT (1538 GMT). It showed a near 12 percent gain on the week.
Brent, the global benchmark, rose $2.44, or 2.5 percent, to $50 a barrel. It gained 10 percent on the week.
Gasoline prices surged about 5 percent on the day after Phillips 66 unexpectedly shut down a 150,000-barrel-per-day fluid catalytic cracker at its 238,000 bpd refinery in Linden, New Jersey, due to a leak.
In Yemen, warplanes from a Saudi-led coalition killed 10 people in air raids on Aug. 28, local officials said.
Some analysts also attributed U.S. crude's strength to concerns that Tropical Storm Erika was headed toward oil and gas installations in the U.S. Gulf, as visible on the U.S. National Hurricane Center website.
Global oil prices are still at half their value from a year ago thanks to a huge oversupply of fuel and sluggish demand. Worries over China's economy have compounded the falls in recent weeks.
Some analysts said the slump of nearly 30 percent in just two months meant a rebound was due. The rally on Aug. 27 was fed by a stock market rise, strong U.S. growth data and a pipeline outage in Nigeria.
Some traders remained convinced the rally would fizzle and oil prices would head lower again.
"Spreads in U.S. crude yesterday were weaker across the board, even though the spot contract was up 10 percent," Tariq Zahir, an oil bear at Tyche Capital Advisors in Laurel Hollow, New York, said.
"Today, while not weaker, they are also not significantly stronger. This confirms that the spread market doesn't buy this rally."
Recommended Reading
Exxon’s Payara Hits 220,000 bbl/d Ceiling in Just Three Months
2024-02-05 - ExxonMobil Corp.’s third development offshore Guyana in the Stabroek Block — the Payara project— reached its nameplate production capacity of 220,000 bbl/d in January 2024, less than three months after commencing production and ahead of schedule.
Venture Global, Grain LNG Ink Deal to Provide LNG to UK
2024-02-05 - Under the agreement, Venture Global will have the ability to access 3 million tonnes per annum of LNG storage and regasification capacity at the Isle of Grain LNG terminal.
What's Affecting Oil Prices This Week? (Feb. 5, 2024)
2024-02-05 - Stratas Advisors says the U.S.’ response (so far) to the recent attack on U.S. troops has been measured without direct confrontation of Iran, which reduces the possibility of oil flows being disrupted.
McKinsey: US Output Hinges on E&P Capital Discipline, Permian Well Trends
2024-02-07 - U.S. oil production reached record levels to close out 2023. But the future of U.S. output hinges on E&P capital discipline and well-productivity trends in the Permian Basin, according to McKinsey & Co.
EIA: Oil Prices Could Move Up as Global Tensions Threaten Crude Supply
2024-02-07 - Geopolitical tensions in the Middle East and ongoing risks that threaten global supply have experts questioning where oil prices will move next.