By Barani Krishnan (Investing.com) - It's a volatile time for oil, with crude prices jumping as much as 4% on Wednesday after a 7% plunge the previous day, before giving back a chunk of those gains by the close.
The market settled up, however, with some traders cautioning such price action could be a bull trap, particularly after data showing another week of crude stockpile builds.
"It's a surprise on a few different fronts," Tariq Zahir, managing member at New York's Tyche Capital Advisors, said, adding that the market "could reverse, especially if a risk-off attitude develops and the dollar gets some strength." Zahir, who trades long-dated futures of oil, expects U.S. crude futures to break below its key $50 support.
U.S. WTI settled up $1.20, or 2.2%, at $54.63 per barrel after surging more than $2.40 earlier in the day. In Tuesday's session, it fell around 7% to a 13-month bottom of $52.77.
U.K. Brent, the global benchmark for oil, rose 69 cents, or 1%, to $63.22 by 2:53 PM ET (19:53 GMT), after hitting a session high of $64.47. On Tuesday, it sunk to a nine-month bottom of $61.73.
Both crude benchmarks were up even before the New York session after industry group American Petroleum Institute estimated late on Tuesday a drawdown in crude stockpiles last week instead of a build. Tuesday's 7% slide also prompted some short-covering and bargain-hunting for crude, traders said.
But what few anticipated was the market extending gains after the U.S. Energy Information Administration (EIA) showed a ninth-straight week of crude builds last week, and more than forecast.
The EIA data showed that crude oil inventories increased by 4.85 million barrels in the week to Nov. 16, vs. a forecast build of 2.5 million barrels.
The report also showed that gasoline inventories fell by 1.30 million barrels, compared to expectations for a draw of 0.2 million barrels, while distillate stockpiles dropped by just 0.08 million barrels, compared to forecasts for a decrease of 2.75 million.
"The crude build aside, the real eye opener was the smaller-than-expected draw in distillates, which basically tantamounts to a no-draw, surprising given the cold spell we currently have in the Midwest and East Coast," Zahir said.
Most traders have a bleak outlook for oil despite OPEC hinting over the past week that it might decide to cut production by as much as 1.4 million barrels per day when it meets in Vienna on Dec. 6. Many dispute such a wide cut happening as OPEC leader Saudi Arabia has only offered to reduce 0.5 million bpd on its own and would need non-member Russia's cooperation for the balance, a plan Moscow has resisted so far.
President Donald Trump's persistent calls on OPEC not to cut production and to keep oil prices low has also weighed on the market as the U.S. president is seen as key for Saudi Arabia to avoid sanctions for its alleged role in the murder of Saudi-born U.S. resident and journalist Jamal Khashoggi.
"I think we have a very noisy couple weeks ahead of us, and a volatile market that is making it increasingly difficult to express a view in a limited loss format," Elliot Klapper, managing director for commodities at Goldman Sachs, said in a note to clients.