Investing.com - Oil futures soared 9% on Friday to move further away from the lowest level since 2003 amid heavy short covering as equity markets rallied throughout the world on the back of expectations for fresh central bank stimulus.
On the New York Mercantile Exchange, crude oil for delivery in March jumped $2.66, or 9.01%, to end the week at $32.19 a barrel, the most since January 11.
On Thursday, prices advanced $1.18, or 4.16%, as traders closed out bets on lower prices ahead of an upcoming snowstorm in the U.S. and amid hopes that major central banks will announce fresh stimulus measures.
For the week, New York-traded oil futures rose $2.99, or 9.42%, the first weekly gain in a month. The U.S. benchmark is still down nearly 13% this month amid ongoing concerns over a global supply glut.
U.S. oil futures plunged below $27 on Wednesday for the first time since September 2003, as investors worried that a huge oversupply in crude was coinciding with an economic slowdown, especially in China.
Elsewhere, on the ICE Futures Exchange in London, Brent oil for March delivery surged $2.93, or 10.02%, on Friday to close the week at $32.18 a barrel. A day earlier, prices climbed $1.37, or 4.91%.
On the week, London-traded Brent futures gained $3.45, or 11.2%, snapping a three week losing streak. Brent prices are still down almost 14% since the start of the year. Brent sank to $27.10 on Wednesday, a level not seen since October 2003.
Market analysts viewed the 14% surge on Thursday and Friday as a classic dead-cat bounce from oversold conditions. Gains were likely to remain limited in the near-term amid a persistent global supply glut and worries over the health of the global economy, particularly China.
China is the world's second largest oil consumer after the U.S. and has been the engine of strengthening demand.
Global crude production is outpacing demand following a boom in U.S. shale oil and after a decision by the Organization of the Petroleum Exporting Countries last year not to cut production in order to defend market share.
Oversupply issue will be exacerbated further as Iran plans to return to the global oil market after western-imposed sanctions were lifted earlier this month. Analysts say the country could quickly ramp up exports by around 500,000 barrels.
The surge in Iranian shipments is viewed as bearish for crude, which has fallen approximately 75% from its peak of $115 two summers ago, amid a glut of oversupply on markets worldwide.
Most market analysts expect a global glut to worsen in the coming months due to soaring production in North America, Saudi Arabia and Russia.
Meanwhile, Brent's discount to the West Texas Intermediate crude contract stood at 1 cent, compared to a gap of 28 cents by close of trade on Thursday.
In the week ahead, investors will be looking to Wednesday’s Fed policy statement for any indication that the bank is considering slowing the path of interest rate increases this year.
Markets will also be looking to Friday’s data on U.S. fourth quarter gross domestic product, which is expected to show that growth slowed to a modest 0.8% from 2.0% in the third quarter.
Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.
Monday, January 25
In the euro zone, the Ifo Institute is to report on German business climate.
European Central Bank head Mario Draghi is to speak at an event in Frankfurt.
Tuesday, January 26
The U.S. is to publish a report on consumer confidence, while the American Petroleum Institute, an industry group, is to publish its weekly report on U.S. oil supplies.
Wednesday, January 27
The U.S. Energy Information Administration is to release its weekly report on oil supplies.
Later in the day, the Fed is to announce its benchmark interest rate and publish its rate statement, which outlines economic conditions and the factors affecting the monetary policy decision.
Thursday, January 28
The U.S. is to release data on initial jobless claims, durable goods orders and pending home sales.
Friday, January 29
The Bank of Japan is to announce its benchmark interest rate and publish its rate statement. The announcement is to be followed by a press conference.
The euro zone is to release preliminary data on consumer inflation. Meanwhile, Germany is to report on retail sales and Spain is to produce preliminary data on fourth quarter GDP.
Canada is to release its monthly report on GDP.
The U.S. is to round up the week with a preliminary estimate of fourth quarter growth, as well as a look at business activity in the Chicago area and revised data on consumer sentiment.