US Oil Climbs as Number of Rigs Plunges

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US Oil Climbs as Number of Rigs Plunges

Oil prices rose from the six-year lows, climbing more than 8% as a record weekly drop in US oil drilling fueled a frenzy of the short-covering.

The news of the dropping domestic production facilities came against the backdrop of the otherwise bearish supply-and-demand fundamentals on Friday, including the growing gap between the consumption and production for oil from the Organization of the Petroleum Exporting Countries and weaker-than-expected reading on Q4 economic growth.

According to The Wall Street Journal the benchmark US oil contract climbed $3.71 to settle at $48.24 per barrel on the New York Mercantile Exchange, the largest one-day climb since June 2012.

The global benchmark, Brent, climbed 7.9% or $3.86 to $52.99 per barrel on the ICE Futures Europe exchange, the largest rise since April 2009.

Baker Hughes, oil-field services company reported a drop of 7% in the domestic oil-drilling rigs for the week, bringing the count to 1,223, a low of three years.

Phil Flynn, account executive at Price Futures Group said, “This is another sign that the drop in energy prices is going to impact future production of oil. People who have been short are starting to have second thoughts about staying short at this level.”

There are people who are not convinced that the selloff is over.

Tariq Zahir, managing member at Tyche Capital Advisors was quoted by Reuters as having said, “There was a lot of short-covering before the month end from people wanting to take profit from the $40-odd lows, so it’s not surprising that we rallied.”

He added, “This doesn’t change the fundamental outlook in oil. We are still about 2 million barrels oversupplied.”

To contact the reporter of the story: Jonathan Millet at john@forexminute.com