“I think panic took over common sense and now we’re starting to get a grip on reality,” Phil Flynn, analyst at Price Futures Group, told Reuters. “There’s no doubt, there are fundamentals out there that mean weaker energy prices, but a price of $26 a barrel is pricing in a global recession and we’re not in one.”
The sudden bounce in oil prices may have also forced short covering among overly bearish traders and helped the rally push higher. Investors with heavy short positions are forced to cover, or buy back, their shorts in the event of positive reports that result in a share appreciation. Consequently, the additional buying momentum from short sellers covering their options contracts helped bolster prices even further.
“Oil is going to rally into the spring,” James Cordier, founder of Optionsellers.com, told Bloomberg. “It’s short-covering rally, but we do think it has legs to continue.”
United States Oil Fund
Max Chen contributed to this article.