Oil prices jumped more than 2 percent to an eight-month high above $73 a barrel on Tuesday, as a sudden spike in Brent buying pinned on fund positioning ushered out the market's best quarterly gain since 1990.
While the rally drew support from fresh attacks on oil facilities in Nigeria as well as improving risk sentiment aided by rising equity markets, traders said those factors were secondary to the sudden big Brent bid orders that triggered the frenzy, overwhelming liquidity during the thin Asian day.
Trading volume in both Brent and U.S. crude oil futures surged to more than 10 times the norm for the Asian time zone as prices leapt more than $1.50 in under half an hour around 0200 GMT (10 p.m. EDT), the sort of move typically only seen in the event of hurricanes or other major disruptions.
It feels like short-covering because of stop orders left overnight, said a trader with a global investment bank.
Both prices and volumes cooled slightly by midday, with U.S. crude for August delivery up $1.29 at $72.78 a barrel by 0405 GMT, off its earlier eight-month high of $73.38. August trade was 12,400 lots versus a few thousand lots normally.
The main focus was on London ICE Brent crude, with volume in the front-month August contract surging to more than 17,000 lots versus the less than 1,000 lots normally, and prices spiking to a peak of $73.50 a barrel. Traders said bids for 500 or 600 lot clips spooked a market accustomed to 10-20 lot bids.
By 0407 GMT, Brent was up $1.66 to $72.65 a barrel.
Trading activity in U.S. gasoline and heating oil, which expire at the end of the day, was minimal.
Most traders were quick to point the finger at one or several big funds, either closing out loss-making positions, dressing up returns by boosting prices at the end of the quarter or perhaps taking a position in anticipation of a Q3 influx of new funds.
This could be end of quarter movement, and traders are trying to push prices higher and then selling before closing their books, said Mark Pervan, senior commodities analyst at ANZ Bank. I haven't seen any new catalyst on the news front.
Others were more blunt about the unexplained surge in volume, which seemed to be counter-productive given the fact that any sizeable bid would drive up prices due to thin Asian liquidity.
The only reason to do that size at that time of day is to try to move the market or because you are an idiot, said one.
Some analysts pointed to Nigeria, where the main militant group said on Monday its fighters had attacked an oil facility belonging to Royal Dutch Shell
Driven by hopes of a global economic recovery, oil prices are on track to post a near 50 percent jump in the second quarter, the highest quarterly percentage gain since 1990.
Oil has rallied on hopes for an improving economic outlook and a growing appetite for risk among investors, a factor given further impetus by Asian and U.S. stock market gains.
The International Energy Agency on Monday gave a mixed view of the medium-term outlook for the market, saying there was a chance of an extended economic contraction and the threat of a supply crunch had only receded, not gone away.
(Editing by Michael Urquhart)