Copyright 2015 Bloomberg.

Ben Sharples

(Bloomberg) — Oil traded above $50 a barrel after the biggest slide in four days as investors weighed forecasts for slowing U.S. crude output against signs that the market is oversupplied.

Futures gained as much as 2.2 percent in New York, compared with a 5.4 percent loss on Tuesday. The Energy Information Administration reduced its U.S. 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 Bloomberg News survey showed before a separate EIA report on Wednesday.

Oil is trading amid the highest volatility in six years as U.S. stockpiles continued to expand, contributing to a global glut that drove prices almost 50 percent lower last year. Crude may resume its fall as U.S. 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 U.S. 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 $50.41 at 1:41 p.m. Sydney time. The contract dropped $2.84 to $50.02 on Tuesday. The volume of all futures traded was about 47 percent below the 100-day average. Prices have decreased 5.4 percent this year.
Price Volatility
Brent for March settlement climbed as much as 50 cents, or 0.9 percent, to $56.93 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 $6.08 to WTI.

The CBOE Crude Oil Volatility Index, which measures fluctuations using options of the U.S. 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.

U.S. 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 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.
U.S. Supply
“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 seven 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.
To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net Yee Kai Pin