"I think panic took over common sense and now we're starting to get a grip on reality," said Phil Flynn, analyst at Price Futures Group in Chicago. A large driver of the rebound in prices over the last two days has also been short covering, buying back barrels sold previously at a higher price, as investors take advantage of the lowest prices since 2003. Short positions in the US oil futures and options markets had doubled in three months to record highs of more than 200 million barrels.
"Given the volatility we've seen in the oil price, even intraday, swings of 3 to 4 percent, if you are going to see a rebound, this is the kind of rebound you'd expect," CMC Markets analyst Jasper Lawler said. Brent rose $2.93, or 10 percent, to settle at $32.18 a barrel. It was the biggest daily rise since a fierce short-covering rally in late August, when prices had just tested post-financial crisis lows around $42 a barrel.
At that time, Brent gained more than 25 percent in three days, the biggest three-day rally since the run-up to the first Gulf War in 1990. Some suggested there could be more gains next week as more shorts rush for the exit. "Markets seldom repeat themselves with precision, but we see potential for a variation on that theme now," said Tim Evans, energy futures specialist at Citi Futures.
US crude rose $2.66 or 9 percent to settle at $32.19 per barrel. The latest rally is somewhat less impressive on an absolute basis than on a percentage basis. Brent has gained $4 a barrel in two days, a more common occurrence when oil was over $100 a barrel in the years prior to 2014. Some analysts pointed to a largely similar rally in oil prices in late August, which was followed by eight weeks of choppy trading and ultimately a break to new lows.
"Markets seldom repeat themselves with precision, but we see potential for a variation on that theme now," Tim Evans, energy futures specialist at Citi Futures said. Heating oil futures led the markets higher, with ICE gas oil futures soaring more than 11 percent, their biggest percentage gain since January 2009. US heating oil was up more than 9 percent, its biggest one-day gain since September 2005.