Contango is when front-month futures contracts are priced lower than later months, and it is a bearish sign. "Tomorrow, we should see a significant downward push on the contract," he said.
"The market gets bid up on some short covering. Once that dries up, we come right back down. It's really just people scraping money out of the market before the end of the year," said Gene McGillian, analyst at Tradition Energy.
Saudi Arabia Oil Minister Ali al-Naimi said early Thursday that OPEC could not cut production without the help of other large producers, and it is impossible for the Organization of the Petroleum Exporting Countries to runaround the temporary price slump on its own.
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McGillian said the market's initial response to those comments was positive since Naimi said the price drop was temporary and the market would rebalance, but ultimately he reinforced OPEC's view that it will not reduce production to stop the decline.
Cuts in capex spending by oil producers have led to speculation that oil prices are close bottoming, and oil-related equities have been bid higher in the past two sessions. Marathon Oil was among the latest to announce cutbacks, forecasting about a 20 percent reduction in capital expenditures for next year.
But some oil strategists say the abrupt reversal was bearish and crude could find new lows. Some do not expect a real bottom in the market until at least late February or March when oil is seasonally down because of lower demand and refineries shutting down.
Oil futures have also been highly volatile ahead of the expiration of the January WTI contract Friday.
"It means nothing has changed. It was a brief rally with an exuberance that crossed through all markets. The fundamentals continue to talk the price down," said Kilduff. "It was a weak rally in sympathy with the rest of the market. Now you have Naimi, and you have (Russian President Vladimir) Putin saying he can handle lower prices."
The concerns over supply in the market clearly bubbled up, as reports about Nigerian workers ending a port strike circulated. The strike was limited and did not affect oil ports, but Royal Dutch Shell earlier reported improved conditions in Nigeria and it ended a force majeure on Nigerian EA crude after completing repairs to a mooring platform.
There was also speculation that supplies in Cushing, Oklahoma, could continue to grow after this week's government report showed a sizable build of 2.9 million barrels.
"We've seen in the most recent two reports big builds at Cushing. What it's showing is a lot of oil is still getting of out the ground from the shale plays to the Nymex delivery point and the structure of the curve is starting to encourage more storage because you're getting paid to store it," said Kilduff.
Any signs of even incremental oil supply coming on to the market has made it skittish. One reason strategists do not see a bottom soon is because oil production is expected to continue to grow before the cutbacks in spending impact projects later in the year. U.S. production is expected to grow by another several hundred thousand barrels a day next year, and even Russia could push more oil to world markets as it seeks revenue.
Russia needs about $100 a barrel to meet its budget requirements, and the drop in crude prices has hit it hard at the same time it has been sanctioned for its activities in Ukraine.
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"This market is looking ahead. They're switching the story from peak oil to abundant oil," said Paul Christopher, Wells Fargo Advisors' chief international strategist. Christopher pared back his 2015 year-end forecast for WTI to between $60 and $70 a barrel. He projects a rebound in oil prices in 2015 but expects it to remain very volatile.
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He recommended investors with stand-alone energy positions reallocate into diversified commodity positions of no more than 3 percent of the portfolio.