Oil prices climbed took off in the final 30 minutes of Tuesday’s trading session, and analysts wondered whether the surge represented a temporary blip or the start of a comeback from a 7-month-long losing streak.
As Reuters noted, for most of the day oil was flat or slightly lower, owing to “data showing that U.S. crude oil stockpiles rose far more than expected last week.”
But Brent and U.S. crude each soared $2 late in the session. Brent, for February deliver, settled up $2.10 (4.5 percent), to $48.69 a barrel. That’s the biggest one-day advance since June 2012.
U.S. crude rose $1.01 (5.6 percent), to $48.48, the biggest one-day jump since August 2012.
Most dealers saw the late-day rebound as a temporary correction in the seven-month slump that wiped more than 60 percent off of oil prices, reluctant to call the bottom of a rout that has repeatedly defied forecasts of a floor.
“(With the) velocity of the downward trend that we’ve been in, you can expect to see violent snapbacks,” said Tariq Zahir of Tyche Capital.
Even so, there were growing signs that low prices were finally beginning to slow the unrelenting growth in U.S. oil production, a key factor for markets as OPEC powerhouse Saudi Arabia refrains from cutting output despite a growing glut.
North Dakota’s chief oil regulator said he expects production to be steady until mid-year and could decline in the third quarter.
The late rally was attributed to many traders holding expiring options, leading them to scramble to square their positions. As Oliver Sloup, director of managed futures at iitrader.com LLC, put it:
“A lot of shorts are so deep into their put options, the only way to exit their position is to buy back futures.”