NEW YORK (Reuters) - World oil prices had their biggest surge in two-and-a-half years on Wednesday, rebounding from a nearly six-year low as traders turned away from the bearish pressures of a worldwide glut to cover themselves on expiring options.
U.S. and Brent crude staged blistering $2 rallies in the final half-hour of trade as dealers with options exposure scrambled to square their positions. Oil had earlier traded steady to lower following data showing that U.S. crude oil stockpiles rose far more than expected last week.
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. And the closely watched Brent/WTI spread CL-LCO1=R settled at 16 cents, matching its narrowest level since 2010 as traders scrambled to buy benchmark U.S. crude for storage.
Brent crude LCOc1 rose $2.10, or 4.5 percent, to settle at $48.69 a barrel, in its strongest daily percentage gain since June 2012. The benchmark hit a low of $45.19 on Tuesday, the lowest since March 2009, amid increasing U.S. stocks and a continuing global supply glut.
U.S. crude CLc1 oil settled at $48.48 up $2.59, or 5.6 percent, the biggest gain since August 2012. U.S. gasoline futures lead the charge, rising more than six percent due to falling refinery rates.
“The options expiry is definitely the main reason for the big rally just before the close. A lot of shorts are so deep into their put options, the only way to exit their position is to buy back futures,” said Oliver Sloup, director of managed futures at iitrader.com LLC.
U.S. government data showed crude stocks rose 5.4 million barrels, more than 10 times what analysts had expected. Inventories at the Cushing, Oklahoma, delivery hub for the U.S. futures contract, rose 1.8 million barrels.
Oil prices were under pressure early in the day after the World Bank lowered its 2015 and 2016 world economic growth forecasts, reinforcing worries about sluggish demand growth in the oversupplied energy markets.
While few dealers were prepared to say the long decline has ended, some were starting to cautiously look upward.
“I do think that the market is primed to test resistance near $50,” said John Saucer, vice president of research and analytics at Mobius Risk Group. It would be a “big psychological boost” if the market manages to close above that on Thursday.
Additional reporting by Ed McAllister in New York; Libby George and Himanshu Ojha in London, Henning Gloystein and Florence Tan in Singapore Editing by Marguerita Choy, Christian Plumb, Jonathan Leff and Gunna Dickson