US oil prices rose more than 35 per cent overnight recouping some losses from a sell-off that drove prices to near 20-year lows.
But analysts saw the rebound as a brief reprieve, anticipating more weakness as the coronavirus outbreak takes its toll on global demand.
The outbreak has put pressure on the market as schools and businesses have shuttered, suppressing economic activity around the globe.
At the same time, the price war between Saudi Arabia and Russia is flooding markets worldwide with cheap oil.
Oil extended gains late in the day after US President Donald Trump on Thursday said he would get involved in the oil price war between Saudi Arabia and Russia at the appropriate time.
US crude and global benchmark Brent, both of which have lost half their value in less than two weeks, got some respite on Thursday as investors across financial markets assessed the impact of massive central bank stimulus measures.
West Texas Intermediate (WTI) crude settled up $US4.85, or 24 per cent, to $US25.22 after dropping nearly 25 per cent to an 18-year low in the previous session. It then extended gains in post-close trading.
Brent crude settled up $US3.59, or 14.4 per cent, at $US28.47 a barrel, having plunged to $US24.52 on Wednesday, its lowest since 2003.
“After yesterday’s drubbing, people are coming into the market, because they see some production cuts ahead, but those are not enough to offset the demand in decline that the market is going to see in April and May,” said Andrew Lipow, president of Lipow Oil Associates.
Following the breakdown of talks between Saudi Arabia and Russia over curbing supply, Saudi Arabia, de facto leader of OPEC, announced plans to increase supply to a record 12.3 million barrels per day (bpd) and cut its official selling price for its oil by several dollars per barrel.
In the United States, where dozens of shale oil and gas drillers and services companies risk bankruptcy, senators on Wednesday urged Saudi Arabia and Russia to halt their price war during talks with the kingdom’s envoy to Washington.
Trump noted, however, that low gasoline prices were good for US consumers even as they were hurting the industry. “At the appropriate time I’ll get involved,” he said.
Central banks have moved to mitigate the spiralling economic and financial fallout from the coronavirus pandemic, with the European Central Bank kicking off a 750 billion euro ($US820 billion) emergency bond purchase scheme. The drop in demand, particularly in transportation, is also leading to a rapidly growing glut in refined products such as jet fuel and gasoline.
“From April 1, about 4 million bpd could flood the markets, potentially pushing down crude oil prices into the teens,” Jefferies analysts said in a note.