Oil Rips 10% Higher As Bears Race To Cash In On Crash
NEW YORK, Jan 22 (Reuters) - Oil prices surged 10 percent on Friday, one of the biggest daily rallies ever, as bearish traders who had taken out record short positions scrambled to close them, betting the market's long rout may finally be over.
The onset of a massive snowstorm on the U.S. East Coast sent U.S. heating oil up more than 10 percent, helping fuel a 15 percent gain in crude prices over two days that has reversed nearly half of the relentless, fund-driven selloff that had pushed crude below $30 a barrel for the first time in 12 years.
"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 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 U.S. oil futures and options markets had doubled in three months to record highs of more than 200 million barrels in the week to Jan. 12.
Data late on Friday showed that some bearish traders had begun taking profits even before the rebound, with short positions falling in the week to Jan. 19.
"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.
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