Oil futures rally as investors buy in after price slump

Better known for their oil fields, refineries, and petrol stations, BP, Royal Dutch Shell and Total are also the world's biggest oil traders. Photo / AP

Oil bulls finally caught a break as prices capped their first weekly advance since November. Hedge funds raised their net-long position in West Texas Intermediate crude by 12 per cent in the week ended Wednesday last week, US Commodity Futures Trading Commission data show.

Long wagers jumped the most since March 2011. WTI climbed 6.1 per cent in the three days after the report period, after dropping more than 50 per cent since June.

US oil drillers took a record number of rigs out of service since December 5, spurred on by the Organisation of Petroleum Exporting Countries' (Opec) decision to maintain output.

Production growth will slow this year among countries outside Opec, the International Energy Agency said last week.

"People are willing to buy into the market at these price levels," said Michael Lynch, president of Strategic Energy & Economic Research.

"It suggests that they think that the odds of us going much lower are small." WTI fell US$2.04, or 4.3 per cent, to US$45.89 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report, dropping to US$44.20 by Wednesday last week, the lowest price since 2009.

Futures rallied to US$48.69 by Saturday, bringing the advance for the week to 0.7 per cent.

Investors have put US$1.11 billion into the four biggest oil exchange-traded products so far this month on top of US$1.23 billion in December, the biggest monthly gain since 2010, according to data compiled by Bloomberg.

The IEA lowered its non-Opec supply growth estimate by 350,000 barrels a day last week, the first cut since the 2015 forecast was introduced in July. That will lead to a "rebalancing" of oversupplied markets in the second half, reviving prices, the agency said.

The US Energy Information Administration reduced its 2015 US production outlook last week by 10,000 barrels a day to 9.31 million.

The drop in the US oil rig count of 209 was the steepest six-week decline since Baker Hughes began tracking the data in July 1987. The total tumbled 55 last week to 1366.

"The rig count fell pretty dramatically and people were speculating that there could be more cutbacks in production," said Phil Flynn, senior market analyst at the Price Futures Group.

- Bloomberg