London: Oil rose for the first time in four days in New York as price volatility climbed to near the highest levels in seven years and Goldman Sachs Group Inc. warned of wider swings to come.

Futures climbed as much as 3.1 per cent after dropping 3.9 per cent Monday. Volatility is set to “spike” as prices continue to seek an equilibrium, which could drag crude below $20 a barrel, Goldman Sachs predicted. The CBOE Crude Oil Volatility Index, which measures expectations of swings in prices, was at 68.38, near its highest since 2009. The global oil surplus will be bigger than previously estimated in the first half of this year, according to the International Energy Agency.

Oil is down about 18 per cent this year on speculation a global glut will persist amid the outlook for increased exports from Iran after the removal of international sanctions and brimming US crude supplies. The nation’s drillers idled the most rigs since April last week as inventories rose above 500 million barrels to the highest level in monthly data since 1930.

“The market is waiting for some visible signs of production capitulation,” said Olivier Jakob, managing director at consultants Petromatrix GmbH in Zug, Switzerland. “That has not happened yet but the global stress induced by the current oil prices is clearly increasing and the rope will break at some point.”

West Texas Intermediate for March delivery rose as much as 92 cents to $30.61 a barrel on the New York Mercantile Exchange and was at $30.27 at 11:30am. London time. Prices dropped $1.20 to $29.69 on Monday, the first close below $30 since Feb. 2. Total volume traded was near the 100-day average. Prices lost 30 per cent last year.

Shale Output

Brent for April settlement was 37 cents higher at $33.25 a barrel on the London-based ICE Futures Europe exchange. The contract fell $1.18, or 3.5 per cent, to $32.88 on Monday. The European benchmark crude traded at a premium of $1.14 to WTI for April.

Supply may exceed consumption by an average of 1.75 million barrels a day in the first half of the year, compared with an estimate of 1.5 million last month, and the excess could swell if the Organisation of Petroleum Exporting Countries adds more output, the IEA said in its monthly oil market report released Tuesday. Iran raised production in January following the removal of international sanctions, Iraqi volumes reached a record and Saudi Arabia also ramped up output. The agency trimmed estimates for global oil demand.

Volatility Spike

“Volatility’s likely to spike here,” Goldman Sachs’s head of commodities research Jeff Currie said in a television interview. Prices will swing between $20 and $40 a barrel for the next six to nine months, potentially dipping “into the teens” as the global surplus pressures some producers to halt output.

US crude Inventories probably rose by 3.2 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report Wednesday.

US shale fields are pumping more oil and gas than previously estimated, according to the EIA’s Drilling Productivity Report. The seven major shale formations in the US will produce 5.02 million barrels a day in February, up from last month’s forecast of 4.83 million a day, the EIA report released Monday showed.