Oil stocks bounced, in their best day in three years, but oil industry analysts say the equities may be premature in celebrating a bottom in oil prices.
"I think it's too early to call that," said John Kilduff of Again Capital. "All the elements are in place that got us to these new lows. We've had episodes of backing and filling and working off some of those oversold conditions. I think the Russian situation was a disrupting event and oil was acting bad because of it. OPEC is on the wires every day saying they don't care how low it goes, they're not going to cut back."
West Texas Intermediate crude futures rose 54 cents to settle at $56.47 per barrel, while the S&P energy industry sector jumped 4.2 percent. Brent crude futures settled up 1.9 percent at $61.18 per barrel.
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Oil majors like Exxon and Chevron were sharply higher, as were energy ETFs, like Market Vectors Oil Services ETF OIH and the Energy Select Sector SPDR Fund XLE. Transocean, Diamond Offshore, Halliburton and dozens of other names in the sector saw gains of 3 and 4 percent.
Analysts say it could take a change in stance by OPEC for the oil market to see a bottom. "I don't think we can determine that at all yet. In the last four months we've seen rebounds in prices from $3 to $5 and the market is still headed lower," said Gene McGillian, analyst at Tradition Energy.
"Until we get a sign these things that were driving us down are changed, we're still going to go lower," said McGillian, who said short covering was a big factor Wednesday.
Fadel Gheit, senior energy analyst with Oppenheimer, said the market may be getting close to a bottom.
"All the oil stocks are rising because people believe oil prices have bottomed. That's a second strong day in a row. People think if it repeats three times then the thing is real," said Gheit.
One reason that analysts expect oil prices to remain low is that supply continues to increase and will into the first half of next year. Newer U.S. wells are expected to continue to produce several hundred thousand more barrels a day next year, down from the million barrels expected when prices were high.
U.S. oil production grew last week to 9.14 million barrels a day from 9.12 million the week earlier.
Even Russia, badly burned by lower oil prices, could also put more onto the world market. New rules on refining tariffs could result in more product exports starting in January, said Andrew Lipow, president of Lipow Oil Associates. Russian consumers could also require less fuel if the economy continues to tank, and that could put more oil on the world market.
Citigroup energy analyst Eric Lee, however, said Russian output could go either way next year, depending on how much the financial crunch is hurting production. But he does agree more U.S. oil will make it to market and also oil from other places, like Kurdistan and potentially Iraq.
"I think there will be a sub-$50 (for WTI) in our future ... I think the low for this market will be late February/March due to the slack demand period. The refineries will be in maintenance for turnarounds," Kilduff said.