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Oil prices pump out big two-day rally

Iran expects to finalise the wording for a new model for international oil contracts in the next three weeks, the oil minister said on Monday, as Tehran seeks to boost recovery from its fields with the help of foreign companies.

[NEW YORK] Crude oil prices scored big gains for a second straight day on Friday, capping a wild week as traders seemed to view the recent nose-dive as overdone.

US benchmark West Texas Intermediate (WTI) crude for October delivery jumped US$2.66 (6.3 per cent) to finish at US$45.22 a barrel on the New York Mercantile Exchange.

Brent North Sea crude for October, the European benchmark, closed at US$50.05 a barrel in London, a leap of US$2.49 (5.2 per cent) from Thursday's settlement.

Over the week, WTI gained 11 per cent, its strongest weekly increase in four and a half years, after the contract slid on Monday to its lowest close in six and a half years, at US$38.24 a barrel. Brent was up about 10 per cent, its best gain since 2009.

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Both contracts had soared by about 10 per cent on Thursday, rebounding from six-year lows, after news the US economy grew at a better-than-expected annual rate of 3.7 per cent in the second quarter.

On the supply side, the rebound was supported by Shell's shutdown Thursday of two key pipelines in Nigeria, curtailing a large amount of crude for export, because of leaks and sabotage.

"It's just incredible," said Phil Flynn of Price Futures Group. "The reason why oil prices have come back is we're feeling the sell-off was overdone." "Most of the sell-off wasn't about demand destruction but fears of future demand destruction," he said.

Crude fell below US$40 a barrel on Monday as investors worried that China's slowing growth and stock market turmoil would grind the global economy to a standstill, he said.

"But now, you look at the economic data that's coming from both Europe and the US, those fears that the China slowdown is having a big impact on the global economy are probably overstated." Other experts pointed to the global oversupply as a continuing weight on the market, where prices have fallen about 50 per cent since the mid-2014 peaks.

"The petroleum markets remain highly volatile, with traders required to act first and evaluate later," said Tim Evans of Citi Futures.

Mr Evans noted that oil traders appeared more impressed with the Shanghai stock market's 4.8 per cent gain Friday, rather than its nearly eight per cent loss over the week.

"What's far from clear is whether, or to what extent, the underlying fundamentals have improved."