Most Volatile Oil Market Since 2009 Seen Persisting on Oversupply

The most volatile oil market in almost six years is set to continue seesawing as a global glut that drove prices lower last year persists for at least the first half of 2015.

The Crude Oil Volatility Index, which measures price fluctuations using options of the U.S. Oil Fund, ended at 62.73 on Wednesday, the highest level since April 2009. Another measure shows West Texas Intermediate, the benchmark U.S. crude contract, is fluctuating the most in almost 3 1/2 years.

“There is a clash between future expectations of where oil may end up in terms of fundamentals and what we’re seeing on the ground right now,” a senior commodity strategist said by phone. “That’s why you’re getting that whipsaw affect in prices at the moment. This is something that we’re going to have to get used to, at least in the foreseeable future.”

Oil halted its biggest four-day rally since January 2009 on Wednesday after U.S. government data showed crude stockpiles in the world’s largest consumer expanded to the highest level since at least 1982. Even amid the volatility, investors continue to bet on a rebound, pouring more than $4 billion into exchange-traded products during the past four months.

Oversupplied Market

The U.S. is pumping crude at the fastest rate in more than three decades, driven by new supply from shale formations in Texas to North Dakota. The Organization of Petroleum Exporting Countries has resisted calls to cut its production quota, choosing instead to let prices fall to a level that slows output in nations outside the group.

Benchmark oil prices dropped almost 50 percent in 2014 as more production from fields in the U.S. to Russia contributed to a global glut in the crude market. Supply will exceed demand by 2 million barrels a day in the first half of 2015, according to the Iranian Oil Minister.

WTI for March delivery rose as much as 58 cents to $49.03 a barrel in electronic trading on the New York Mercantile Exchange and was at $48.60 at 5:19 p.m. Sydney time. The contract fell $4.60 to $48.45 on Wednesday. Brent in London gained as much as 85 cents, or 1.6 percent, to $55.01 on ICE Futures Europe exchange.

Implied volatility for at-the-money options in the front-month WTI contract increased to almost 69 percent on Thursday, the highest since August 2011.