Crude oil futures rebounded with stocks Wednesday after a weeks-long market selloff prompted by concerns over rising supply and weak demand growth took a pause.
Brent crude, the benchmark for half the world's oil, advanced from a five-year low. West Texas Intermediate crude shrugged off an increase in supplies at Cushing, Okla., the delivery point for New York Mercantile Exchange futures.
"We are now finally reaching a point where the market isn't going completely straight down anymore," said Bill O'Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4 billion. "It probably has much less to do with fundamentals and a lot more to do with traders positioning."
Brent for February settlement gained $1.17, or 1.9 percent, to close at $61.18 a barrel on the London-based ICE Futures Europe exchange. The January contract expired Tuesday at $59.86.
West Texas Intermediate for January delivery rose 54 cents, or 1 percent, to end at $56.47 a barrel on the New York Mercantile Exchange, with volume 67 percent above the 100-day average. Prices dropped to $53.60 Tuesday, the lowest since May 2009.
Brent jumped as much as 5.8 percent in intraday trading. The price swings prompted the interval price limit, an ICE-developed type of circuit breaker, about 11:56 a.m. that limited trading within a set price range for 5 seconds. The interval price limit is triggered when there is a $1 move in 3 seconds in each direction from an anchor level, according to Brookly McLaughlin, an ICE spokesman.
"We've come down so far, so fast," said Stephen Schork, president of the Schork Group Inc. in Villanova, Pa. "You can't close lower every single day. You've probably gotten into an oversold condition. The market's been pushed around a lot."
Oil has slumped about 45 percent this year as a surge in shale drilling lifted U.S. output to the fastest pace in three decades amid slowing growth in world demand. Members of the Organization of the Petroleum Exporting Countries including Saudi Arabia, the world's largest exporter, have resisted calls from producers such as Venezuela and Ecuador to reduce output to stem the price drop.
"How low the market goes is anyone's guess," said Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston. "Guessing the bottom is like trying to catch a falling knife."
Inventories at Cushing, the delivery point for West Texas Intermediate futures, rose 2.92 million to 27.8 million barrels, the highest level since March, the Energy Information Administration, the Energy Department's statistical arm, said.
"We are going to continue to see builds in Cushing," said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. "Fundamentally we are just extremely weak, but because we've fallen so much, we may see some rebounds. You'll see some violent trading."
Total U.S. crude supply fell 847,000 barrels last week to 379.9 million, the Energy Information Administration said. Analysts surveyed by Bloomberg expected a drop of 2.25 million.
Distillate fuels, including diesel and heating oil, dropped 207,000 barrels to 121.5 million. Ultralow sulfur diesel jumped 2.5 percent to $2.0085 a gallon on the Nymex after ending at $1.96 on Tuesday, the lowest since August 2010.
"Because oil has been so oversold, you are seeing a short-covering rally," said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. "The distillate number is quite bullish."
Prices slipped earlier after Russia reiterated it will keep production steady.
Crude output from Russia, the world's largest crude producer, will be similar to this year's 10.6 million barrels a day in 2015, according to Energy Minister Alexander Novak.
"The price will stabilize itself," Novak told reporters at a meeting of the Gas Exporting Countries Forum in Doha, the Qatari capital. "Some investment projects by oil companies may be reconsidered, but so far they have not adjusted anything."
Information for this article was contributed by Rupert Rowling and Mark Shenk of Bloomberg News.
Business on 12/18/2014