Crude oil markets jumped as much as 5 percent on Monday, rebounding from five-year lows with their biggest daily gain since 2012, on fears that the high U.S. shale output blamed for the global oil glut may be shrinking.
A weaker dollar .DXY, which makes commodities denominated in the greenback more affordable to holders of other currencies, also fueled buying in oil and other natural resource markets, traders said. [FRX/]
Benchmark Brent crude oil LCOc1 settled up $2.39 at $72.54 a barrel, after a session peak at $72.73. It fell as much as $2.62 earlier to $67.53, a low since July 2009. The 3 percent gain on the day was Brent's largest since October 2012.
U.S. crude CLc1 finished up $2.85 at $69 a barrel, after initially plumbing a five-year bottom at $63.72. The 4 percent rise was the largest one-day move up in U.S. crude since August 2012. U.S. crude continued to surge post-settlement, gaining almost 5 percent to $69.34 by 2015 GMT.
"The market clearly got a little overdone to the downside and now it's coming back up, proof that there will be a response from the shale patch to these low prices," said John Kilduff, partner at energy hedge fund Again Capital in New York. "Several shale companies are already reporting capital expenditure reductions next year as their profit margins get thinned out."
On Wall Street, shares of shale energy companies such as Denbury Resources (DNR.N) and Newfield Exploration (NFX.N) took a beating for a second straight session, down about 5 percent each in late afternoon trade.
Data reviewed by Reuters on Monday showed the new low-price environment for oil might have started affecting U.S. shale production, with a 15 percent drop in permits issued for new shale wells in October.
"The market is still looking for a new equilibrium below $70, which is a little surprising given that with the current prices, much of the shale oil production in the U.S., or part of it, will be unprofitable," Commerzbank analyst Eugen Weinberg said.
A Reuters Breakingviews column noted that shale output may not fall as quickly as thought as producers "have ways to keep the oil flowing, including diverting investment to more productive fields and stepping up efforts to cut already rapidly falling costs".
Brent and U.S. crude prices have fallen for five months in a row, the longest losing streak in oil since the 2008 financial crisis. Despite Monday's rebound, they are still down about 10 percent from the start of last week, before producer group OPEC decided on Thursday not to cut output despite oversupply worries.
Saudi Arabia, the most influential member of the Organization of the Petroleum Exporting Countries, blocked moves by some smaller producers to curb output, arguing that low prices would ultimately hurt U.S. shale oil.
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