After drifting lower for a second straight session shortly after the regular session opening on Friday, U.S. West Texas Intermediate and international-benchmark Brent crude oil futures soared to a new multi-week high just ahead of the mid-session, on its way to a more than 2-percent gain.
Early in the session, the markets were pressured by rumors that OPEC+ was considering cutting its current production limits to reflect the current sharp rise in prices. Technical traders were trimming long positions because of overbought oscillator readings, while others were responding to a weaker demand outlook from OPEC and the International Energy Agency (IEA).
Light volume may have been a contributing factor to a sharp intraday rise in prices with most of the major players in Asia on a holiday. The price action suggests that intraday shorts were caught off-guard by a sudden turnaround in sentiment. The upside spike in prices indicated that short-sellers were willing to pay anything to get out of losing positions.
Oil prices have risen over recent weeks due partly to production cuts from the Organization of the Petroleum Exporting Countries (OPEC) and allied producers in the group OPEC+.
U.S. President Joe Biden will meet with a bipartisan group of mayors and governors as he keeps pushing for approval of a $1.9 trillion coronavirus relief plan to bolster economic growth and help millions of unemployed workers.
Meanwhile, all three U.S. stock indexes closed higher for a second straight week, while a sharp drop in new COVID-19 cases and hospitalizations buoyed hopes life will eventually return to normal.
OPEC ratcheted down expectations for global oil demand to recover in 2021, trimming its forecast by 110,000 barrels per day (bpd) to 5.79 million bpd.
Additionally, the International Energy Agency (IEA) said oil supply was still outstripping global demand, though COVID-19 vaccines are expected to support a demand recovery.
Demand data from the world’s biggest oil importer, China, also painted a bleak picture.
The number of people who travelled in China ahead of Lunar New Year holidays plummeted by 70% from two years ago as coronavirus restrictions curbed the world’s largest annual domestic migration, official data showed.
Finally, rebalancing in the market could also face headwinds if U.S. production rises, analysts and traders said.