OIL PRICE UP 10%
Oil jumped by the most in six and a half years on Thursday, rebounding from lows last seen during the financial crisis, as a surge in global stock markets and outages in two major Nigerians pipeline sparked a rally.
Royal Dutch Shell declared force majeure on shipments of Nigeria's Bonny Light crude oil after shutting two pipelines, cutting supplies from Africa's biggest oil producer.
Brent crude, the international benchmark, jumped by $4.42 a barrel in afternoon trading to settle at $47.56. The 10.2 per cent gain marked its biggest one day advance since December 2008.
West Texas Intermediate, the US marker, increased 10.3 per cent, or $3.96 a barrel, to $42.56, the largest daily increase since March 2009.
Meanwhile, Wall Street recovered more of its recent declines. The S&P 500 finally settled 2.4 per cent up at 1,987, leaving it higher than where it ended last week.
Nigeria, an Opec member which produces more than 2 per cent of global supplies, has been plagued by pipeline leaks, sabotage and theft in recent years.
Shell Petroleum Development Company of Nigeria, a Shell subsidiary, said the company was fixing a reported leak on the Trans Niger Pipeline and removing "theft points" on the Nembe Creek Trunkline.
Oil was already rallying, however, before the news from Nigeria supported by a move higher in global stock markets after a volatile few trading sessions, with traders seeing a lower chance of a US interest rate rise next month.
"The flat price of crude oil will continue to be influenced by the volatility in the equity markets," said Olivier Jakob at consultancy Petromatrix.
Growing concerns about an economic slowdown in China — the world's largest oil importer — and renewed signs of a persistent crude overhang took prices to the lowest levels this week since spring of 2009.
The jump in prices on Thursday bore the hallmarks of a short-covering rally, traders said. Hedge funds and other large speculators had amassed a large short position in both major oil benchmarks in expectation prices would continue to fall.
With prices recovering, funds scrambled to buy back positions, traders said, squeezing prices higher.
On Wednesday, the statistics arm of the US energy department said weekly commercial crude oil stocks had fallen by 5.45m barrels, the largest drop since early June.
Analysts remain cautious about whether Thursday's rally signals the oil price decline is over.
As the US summer driving season draws to a close and refinery maintenance season gets under way, plants were "likely to process less crude oil, which in turn will drive up crude oil stocks", said Carsten Fritsch, analyst at Commerzbank.
Despite robust global demand, oil analysts have said meaningful supply reductions will have to occur before prices post a sustainable rebound.
US shale production has surpassed expectations while Opec producers such as Iraq and Saudi Arabia have ramped up output even with prices down more than half since June last year.
"We do not expect prices to rally strongly until supply-side dislocations become much more visible," said Paul Horsnell, head of commodities research at Standard Chartered.
Mr Horsnell, who has been bullish on the oil price, reduced his 2016 forecast for Brent by $20 a barrel to $63.
"The main supply-side tightening will likely come later, in mid-2016 and beyond, due to the lagged effect of capex costs on non-Opec supply," he said.
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