Oil price gushes 7% higher: Here's what you need to know

Australian producers such as Santos Ltd (ASX:STO) and BHP Billiton Limited (ASX:BHP) are surging higher, but will it last?

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Australia's oil and gas companies are charging higher today after a strong upswing in oil prices on Friday. Brent oil, the global benchmark, suddenly surged 7.9% to US$52.99 a barrel on Friday in what was the commodity's best single-day jump in almost three years.

With the commodity having lost more than 50% of its value since June 2014, Bloomberg referred to Baker Hughes data which showed that the number of rigs drilling for oil in the US fell by 94, or 7%, in a single week. Just 1,223 rigs are left in operation while several hundred could be decommissioned in the next few months with service contracts set to expire – all of which could indicate a reduction in global supply.

Other reports suggest the oil price may also have been supported with the Islamic State terrorist group advancing in an offensive near Iraq's northern oil fields, which could impact production in the region.

Indeed, Friday's rally has come as a massive relief for energy companies around the world which have been battling against plummeting prices. Senex Energy Ltd (ASX: SXY) and Origin Energy Ltd (ASX: ORG) are amongst the biggest gainers – their shares up 5.5% and 3.8% respectively – while Santos Ltd (ASX: STO), Woodside Petroleum Limited (ASX: WPL) and BHP Billiton Limited (ASX: BHP) have also risen 1.5%, 0.9% and 1.6% respectively.

With prices hovering near multi-year lows, many investors and producers are convinced the oil glut is nearing an end. The problem is, we're still faced with a massive oversupply and the closure of 7% of US rigs will not necessarily reflect an equal cut in production. Each nation will continue to defend their production rates which could see prices remain depressed for some time yet.

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned. You can follow Ryan on Twitter @ASXvalueinvest.

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