Oil begins advance from 6-yr low

Crude oil extended a surge from the lowest level in almost six years on speculation that some investors are buying contracts to close out bearish bets. US gasoline rose amid a strike affecting some of the nation's refineries. West Texas Intermediate futures gained as much as 4.8 per cent on Monday, while Brent increased as much as five per cent, before paring those advances. Hedge funds and other speculators held the largest number of short contracts in WTI in four years last week. The US grade rose 8.3 per cent on January 30, the biggest one-day gain since June 2012.

"The market was oversold before and the sentiment was extremely negative so on a way up the shorts are being grilled, which is in itself causing prices to rise further," Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, wrote by e-mail Monday.

Oil prices fell to the lowest level since 2009 last month as the US pumped the most in three decades and Opec kept its own supplies unchanged to defend its share of the global market. The United Steelworkers union, which represents employees at more than 200 US refineries, terminals, pipelines and chemical plants, stopped work on Sunday at nine sites after failing to agree on a labor contract.

WTI for March delivery rose as much as $2.32 to $50.56 a barrel in electronic trading on the New York Mercantile Exchange. It was little changed at $48.41 at 12:02 pm London time. The contract gained 8.3 percent on January 30, the largest one-day increase since June 2012. It's up almost 10 percent from January 28, the contract's lowest close since March 2009.

Brent for March settlement increased as much as $2.63 to $55.62 a barrel on the London-based ICE Futures Europe exchange. It climbed $3.86 to $52.99 on January 30. The European benchmark crude traded at a premium of $5.33 to WTI.

Gasoline traded in New York traded at a premium of $15.22 a barrel to crude, the highest since September. "The refinery strike in the US was initially bearish for crude," said Ole Sloth Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen. "However, the same dynamic is bullish for oil products and with margins surging that has triggered a covering of shorts on crude and boosted prices."

The steelworkers' union that went on strike said in a statement that it "had no choice." It rejected five contract offers made by Royal Dutch Shell Plc on behalf of oil companies including Exxon Mobil Corp. and Chevron Corp. since talks began on January 21.

The union hasn't called a national stoppage since 1980, when a halt lasted three months. The refineries on strike can produce 1.82 million barrels a day of fuel, about 10 per cent of total US capacity, data compiled by Bloomberg show.

Rising U.S. supply contributed to a global surplus that drove oil prices almost 50 percent lower last year. The Organization of Petroleum Exporting Countries, which has resisted calls to cut output, boosted production in January as Iraq pumped at a record pace, according to a Bloomberg survey of oil companies, producers and analysts.

U.S. drillers idled 94 oil rigs last week, the most since Baker Hughes Inc. began collecting data in 1987. The number of active machines shrank to a three-year low, said the Houston- based oilfield services company.

Hedge funds and other money managers raised bullish bets on Brent crude for the fourth week in five, according to data from ICE Futures Europe. Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 143,039 lots, 1,056 more than last week, in the week ended Jan. 27, the London-based exchange said today in its weekly Commitments of Traders report.