Oil prices surged on Thursday and Friday, staging a 14 percent rally to push oil back above $31 per barrel.
A combination of factors worked together to stop the bleeding for WTI and Brent. Hopes rose for fresh monetary stimulus from the European Central Bank on Thursday when its President Mario Draghi hinted that more action could be forthcoming. Also, Japan's central bank could also engage in QE-style asset purchasing to boost the economy.
At the same time, a monster snow storm hitting the east coast of the U.S. brought speculation that colder weather could boost demand.
Underlying all of this is the belief that oil could be oversold. Most major investment banks are predicting a rebound in the second half of 2016. Related: Seven Years Of Distortion By The Fed Are About To Take Their Toll
Citigroup went the furthest this week with a major bullish call on the energy sector, saying that oil could be the "trade of the year." Citigroup sees near-term weakness as the markets worry over additional supplies from Iran, but the 500,000 barrels per day of additional Iranian oil could be a rounding error in the grand scheme of things. After that is worked through, an oil price rally could begin.
Citigroup sees Brent rising to $52 per barrel in the fourth quarter of this year. A survey of 12 oil price estimates compiled by Bloomberg found a mean estimate of $47 per barrel by the end of 2016. Only a few months ago that would have been seen as extremely pessimistic, but given today's price levels, an increase to $47 would equate to a 50 percent increase in less than a year.
By Charles Kennedy of Oilprice.com
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