PERTH, June 30 — Oil prices jumped more than 2 per cent to an eight-month high above US$73 (RM258) a barrel today, as a sudden spike in Brent buying pinned on fund positioning cemented the market’s best quarterly gain since 1990.
While the rally drew support from fresh attacks on oil facilities in Nigeria, improving risk sentiment aided by rising equity markets and a weaker dollar, traders said those factors were secondary to the sudden big Brent bid orders that triggered the frenzy, overwhelming liquidity during the thin Asian day.
Trading volume in both Brent and US crude oil futures surged to more than 10 times the norm for the Asian time zone as prices leapt more than US$1.50 in under half an hour around 10.00am Malaysian time, the sort of move typically only seen in the event of hurricanes or other major disruptions.
“It feels like short-covering because of stop orders left overnight,” said a trader with a global investment bank.
Both prices and volumes cooled slightly by midday, with US crude for August delivery up US$1.40 at US$72.89 a barrel, off its earlier eight-month high of US$73.38. August trade was 14,200 lots versus a few thousand lots normally.
The main focus was on London ICE Brent crude, with volume in the front-month August contract surging to more than 19,000 lots versus the less than 1,000 lots normally, and prices spiking to a peak of US$73.50 a barrel. Traders said bids for 500 or 600 lot clips spooked a market accustomed to 10-20 lot bids.
By 2.00pm, Brent was up US$1.62 to US$72.61 a barrel.
Trading activity in US gasoline and heating oil, which expire at the end of the day, was minimal.
Most traders were quick to point the finger at one or several big funds, either closing out loss-making positions, dressing up returns by boosting prices at the end of the quarter or perhaps taking a position in anticipation of a third quarter influx of new funds.
“This could be end of quarter movement, and traders are trying to push prices higher and then selling before closing their books,” said Mark Pervan, senior commodities analyst at ANZ Bank. “I haven’t seen any new catalyst on the news front.”
Others were more blunt about the unexplained surge in volume, which seemed to be counter-productive given the fact that any sizeable bid would drive up prices due to thin Asian liquidity.
“The only reason to do that size at that time of day is to try to move the market or because you are an idiot,” said one.
Some analysts pointed to Nigeria, where the main militant group said yesterday its fighters had attacked an oil facility belonging to Royal Dutch Shell days after President Umaru Yar’Adua proposed an amnesty.
OIL RALLY
“The question now is if the gains can be sustained later during New York trading,” said Toby Hassall, an analyst at Commodities Warrants Australia.
“We’ve got some big numbers on the economic calendar this week, and if the numbers can support the bullish sentiment, prices could extend a leg up and test the US$75 levels.”
A Reuters poll of analysts ahead of weekly inventory data forecast US crude stockpiles fell by 1.6 million barrels last week, while gasoline stocks were seen up 2 million barrels and distillate stocks rose 1.5 million barrels.
The American Petroleum Institute will release its weekly US inventory today, while the US Energy Information Administration report is also due out today.
Driven by hopes of a global economic recovery, oil prices are on track to post a near 50 per cent jump in the second quarter, the highest quarterly percentage gain since 1990.
Oil has rallied on hopes for an improving economic outlook and a growing appetite for risk among investors, a factor given further impetus by Asian and US stock market gains.— Reuters
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