Brent up two percent, US crude erases early losses on short-covering

Oil rose on Friday, erasing early losses on short covering, with Brent futures up more than 2 percent and US crude holding support at above $40 a barrel. A firmer dollar had weighed on oil earlier as commodities denominated in the greenback became less affordable to holders of other currencies such as the euro. US crude futures had also struggled to stay above $40 as worries about large domestic oil stockpiles pressured the market's spot contract ahead of its expiry.
By 1:35 pm EST (1835 GMT), Brent futures were up $1, or 2.2 percent, at $45.18 a barrel. US crude's West Texas Intermediate (WTI) futures rose 16 cents to $40.70 per barrel. WTI's December contract, which expires at Friday's settlement, had fallen to $39.88 earlier in the session, the lowest since August 27. For the week, Brent rose nearly 4 percent while WTI was flat.
"WTI couldn't convincingly push below $40 despite a few attempts today and that's what probably what led to the late support before contract expiry," said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut. "We've also hit technical oversold levels on both Brent and WTI, making the pre-weekend short-covering logical." Crude prices were supported as well by the latest weekly reading on the US oil rig count, which showed a drop of 10 rigs this week. The data, compiled by industry firm Baker Hughes, is an indication of US oil production in coming months.
While WTI held above $40, its spot December contract reached a record discount, or contango, of nearly $2 a barrel to nearby January, showing traders' reluctance to bid oil up in the near term. On a continuation-basis, the front-month's discount, or contango, to the second month was the largest since late April. Brent's rise was partly supported by a larger premium for the global crude benchmark versus WTI. US crude has weakened in four straight sessions against Brent. WTI's contango blew out in recent weeks, coinciding with the spike in the number of barrels of US crude being stored, as traders saw more benefit of buying into oil meant for later shipment due to weak spot prices. Government data on Wednesday showed an eighth straight week of builds in US crude inventories.