Oil prices fell Thursday, erasing the gains from Wednesday's rally, as continued concerns about a glut of crude weighed on the market.
Light, sweet crude for February delivery, the U.S. benchmark, settled down $2.23, or 4.6%, at $46.25 a barrel on the New York Mercantile Exchange. Brent crude for February delivery fell $1.02, or 2.1%, to $47.67 a barrel on the ICE Futures Europe exchange.
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Both benchmarks posted their largest one-day percentage gains since 2012 on Wednesday, as traders took profits and closed out options positions ahead of a contract expiration. Prices rose above $50 a barrel early Thursday but slumped later in the session.
"After yesterday's little jaunt and the spike this morning, we could be headed even lower," said Stephen Schork, editor of The Schork Report, an industry publication. The market's failure to hold above $50 a barrel "could be the catalyst, that we get a run back down toward $42," he said.
Oil markets have fallen by more than half since their June peak, as fears of oversupply of crude, coupled with tepid demand, engulfed the market. The market has fallen so far that it is vulnerable to people trying to pick a bottom, which has created volatile swings in recent months.
"Guys are looking for any reason this thing could bottom out," said Peter Donovan, broker for Liquidity Energy in New York.
Concerns about ample global oil supplies and the U.S. dollar's gains against other currencies sent the market back into losses Thursday, said Gene McGillian, an analyst at Tradition Energy. U.S. inventory data released Wednesday showed total U.S. crude-oil and petroleum-product supplies at 1.16 billion barrels, a record high in weekly data going back to 1990.
Oil is traded in dollars, so a strong dollar makes oil more expensive to buyers using foreign currencies.
Bank of America Merrill Lynch lowered its price forecasts Thursday. The bank now sees Brent crude falling as low as $31 a barrel, and U.S. oil prices tumbling to $32, by the end of the first quarter as global petroleum inventories continue to fill up.
Gasoline futures for February delivery settled down 5.13 cents, or 3.8%, at $1.2994 a gallon. February diesel lost 3.19 cents, or 1.9%, to $1.6233 a gallon, the lowest settlement since July 2009.
(Georgi Kantchev contributed to this article.)