Oil traded above $50 a barrel after the biggest slide in four days as investors weighed forecasts for slowing US crude output against signs that the market is oversupplied.
Futures gained as much as 2.2% in New York, compared with a 5.4% loss on Tuesday. The Energy Information Administration reduced its US production outlook as the market’s slump curbed drilling activity. The nation’s crude stockpiles probably increased further last week from the most in records dating back to August 1982, a survey showed before a separate EIA report on Wednesday.
Oil is trading amid the highest volatility in six years as US stockpiles continued to expand, contributing to a global glut that drove prices almost 50% lower last year. Crude may resume its fall as US output growth leads to a “dramatic” increase in inventories, according to Vitol Group, the world’s largest independent oil trader.
“Current stockpiles are predicted to grow but some in the market are getting a bit more positive looking forward based on the potential for US production to be cut,” Ric Spooner, a chief strategist at CMC Markets in Sydney, said by phone. “It’s a relatively volatile situation as opposed to a one-way street, which we saw for several months.”
West Texas Intermediate for March delivery rose as much as $1.12 to $51.14 a barrel in electronic trading on the New York Mercantile Exchange and was at $50.58 at 3:40 p.m. Singapore time. The contract dropped $2.84 to $50.02 on Tuesday. Prices have decreased 5.1% this year.
Brent for March settlement climbed as much as 57 cents, or 1%, to $57 a barrel on the London-based ICE Futures Europe exchange. It slid $1.91 to $56.43 on Tuesday. The European benchmark crude traded at a premium of $6.25 to WTI.
The CBOE Crude Oil Volatility Index, which measures fluctuations using options of the US Oil Fund, advanced to 59.29 on Tuesday, the first gain in three days. It ended at 63.14 on Feb. 5, the highest level since April 2009.
US production will increase by 7.8% to 9.3 million barrels a day this year, the fastest pace since 1972, the EIA said in its monthly report on Tuesday. That’s down 10,000 barrels from its January projection.
Drillers cut the number of rigs in service to 1,140 by Feb. 6, the lowest since December 2011, data from Baker Hughes Inc. showed. The decline remains short of a level needed to balance the market, according to Damien Courvalin, a New York-based analyst at Goldman Sachs Group Inc.
“It’s very difficult to be sure you’ve seen the bottom, particularly when in the U.S. production is still going up,” Ian Taylor, the chief executive officer of Vitol, said in an interview in London on Tuesday. “We think there are going to be quite dramatic builds in stock for the next few months.”
Crude inventories probably expanded by 3.75 million barrels in the week ended Feb. 6, according to the median estimate in a Bloomberg survey of analysts. Supplies rose the prior four weeks to reach 413.1 million.
Stockpiles climbed by 1.6 million barrels last week, the American Petroleum Institute said on Tuesday, reports on Twitter showed. The industry group in Washington collects information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that data be filed with the EIA, the Energy Department’s statistical arm.
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