Sydney - Oil traded near $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 were little changed in New York after a 5.4 percent loss on Tuesday. The Energy Information Administration reduced its US production outlook as the price slump curbed drilling activity. The nation’s crude stockpiles probably increased again last week from highest in more than three decades, a Bloomberg News survey showed before a separate EIA report on Wednesday.
Volatility is close to the highest in six years as US crude stockpiles expand while a record number of drilling rigs are pulled off the nation’s oil fields. Crude may resume its slide as continuing US output growth leads to a “dramatic” increase in inventories, according to Vitol Group, the world’s largest independent oil trader.
“Oil rising to above $50 is a reaction to prices declining too far too fast,” Andy Sommer, an analyst at Axpo Trading AG in Dietikon, Switzerland, said by phone. “We expect the fundamentals will worsen on further oversupply and push onshore physical storage capacity to its limit, and prices will retreat in the next couple of weeks.”
West Texas Intermediate for March delivery fell 6 cents to $49.96 a barrel in electronic trading on the New York Mercantile Exchange at 9:54 a.m. London time, having earlier risen as much as $1.12. The contract dropped $2.84 to $50.02 on Tuesday. Prices have decreased 6.2 percent this year.
Price volatility
Brent for March settlement fell 51 cents, or 0.9 percent, to $55.92 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 $5.88 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 February 5, the highest level since April 2009.
US production will increase by 7.8 percent 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 a day from its January projection.
US oil drillers cut the number of rigs in service by a record 435 to 1,140 in the nine weeks ended February 6, data from Baker Hughes Inc. showed. That’s the lowest total since December 2011. 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.
US supply
“It’s very difficult to be sure you’ve seen the bottom, particularly when in the US 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 February 6, according to the median estimate in a Bloomberg survey of analysts. Supplies rose the prior four weeks to reach 413.1 million barrels.
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.
* With assistance from Mohammed Aly Sergie
Bloomberg