Oil rebounded Tuesday, with investors buying at bargain levels after prices plunged to four-year lows as governments worldwide ramped up measures to contain the spread of the deadly coronavirus.
Analysts said, however, that any recovery in oil prices is likely to be shortlived as travel restrictions and other tough measures rolled out to fight the virus sap demand amid a production glut and price war.
US benchmark West Texas Intermediate (WTI) was trading at $29.95 a barrel, up 4.36 percent, in afternoon Asian trade.
International benchmark Brent was up 2.43 percent to $30.78 after crashing more than 10 percent overnight to below $30 a barrel for the first time in four years.
“Presumably, the market is getting supported by physical bargain hunters, but those storage facilities are rapidly filling,” said AxiCorp global chief market strategist Stephen Innes.
But “if storage does fill, quashing that demand, oil prices are sure to collapse further”, he said in a note.
“The global markets will then have to hope that the dispute between Saudi Arabia and Russia is resolved before we reach that point of no return.” Last week’s price war began after OPEC kingpin Saudi Arabia pushed an informal alliance of major crude producers to slash output to combat the impact of the virus outbreak on prices.
But alliance partner and non-OPEC member Russia, the world’s second-biggest oil producer, refused – prompting Riyadh to drive through massive price cuts and pledge to boost production.
IHS Markit said rising production and slumping demand could result in the “most extreme global oil supply surplus ever recorded”.
It estimated that if the price war continues amid a global recession and the coronavirus pandemic, the surplus could range between 800 million and 1.3 billion barrels in the first six months of 2020.
This would dwarf the previous six-month global surplus of 360 million barrels from late 2015 to early 2016, it said in a market analysis.
As well as restricting travel, many governments worldwide have shut down schools, large gatherings and non-essential businesses in a bid to contain the spread of the virus.