Oil markets jumped as much as 7% today as speculation about falling US shale output and a rally in equities fed the notion that crude prices may be bottoming after their 20-month collapse.
The markets began the week with a rebound in Asian trade, reacting to Friday's US rig count data, which showed the number of oil drilling rigs in operation falling to a December 2009 low after nine straight weeks of cuts.
Prices got a further boost after the International Energy Agency, the world's oil consumer body, said US shale oil production could fall by 600,000 barrels per day (bpd) this year and another 200,000 bpd in 2017.
Higher equity prices on Wall Street also supported oil, as shares of oil companies such as Chevron.
"For various reasons, traders are growing convinced that the market won't go much lower," said Pete Donovan, crude broker at Liquidity Energy in New York.
"This includes the falling US rig count, the output freeze OPEC is trying to achieve with non-OPEC members, the apparent lack of Iranian barrels flooding the market after the sanction lifted against them and the potential for geopolitical stress," he added, referring to a proposed freeze at January levels by Russia and the Organization of the Petroleum Exporting Countries.
Iraq said it plans to raise oil output levels to more than 7 million bpd over the next five years, and to export 6 million bpd.
US crude futures were up $2.07, or 7%, at $31.71 a barrel by 4.32pm Irish time. US petrol also rose 6%.
Bids to narrow the discount between the expiring front-month contract in US crude to the nearby position was also feeding buying, traders said. The March contract was nearly $2 lower than April, which would be the front-month from tomorrow.
Futures of Brent rose $1.85, or 5.6%, to $34.86.
Despite the gains, analysts said market conditions remained weak, with demand for crude slowing.
"The sharp deceleration in demand growth in recent months (especially gasoline) is a key feature of our more bearish view and expectations for a longer rebalancing period," analysts at Morgan Stanley said.
"China demand looks particularly challenged with several negative trends of late," they added.
While the IEA's outlook for shale output was supportive, it expects the global oil market to only rebalance from 2017 after the selloff that shaved 70% off prices.
"Today's oil market conditions do not suggest that prices can recover sharply in the immediate future," the agency said.