Oil gains 5 percent as January contract nears expiry

Oil gained 5 percent on Friday, which is the biggest one day surge in more than two years.

U.S. West Texas Intermediate crude futures gained $2.41 up to $56.52 a barrel and benchmark Brent increased by 4 percent up to $61 in New York trade.

Part of this increase is because of short covering as the weekend approaches and a surge in fresh buying as the January contract ends.

However, some traders are uncertain that $60 a barrel Brent could be a floor for the market, as fundamentally not much has changed in the market in terms of supply and demand.

“At least I’m not convinced that with Brent at $60 or WTI above $55, we’ve seen the bottom yet,” said Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow, New York.

“If the market keeps going higher, it’ll be a sign for me to sell into the strength, doing about 20 percent more of my normal size, to take advantage of the exaggerated moves we’ll be seeing from the low volumes during the Christmas and New Year weeks.”

WTI’s February contract, which will become the front-month from Monday, gained more than $2 to $56.

“There could be more fireworks in WTI later today from the contract switching, and we may even finish lower,” said Phil Flynn, analyst at the Price Futures Group in Chicago.

Oil prices starting plummeting in June over concerns that of a huge oversupply and weak demand, with very fast-growing U.S. shale crude supplies. Prices continued to drop at a faster rate following news that OPEC decided not to decrease output in November.