Oil prices rose by more than $1 on Tuesday after a price war by top producers Saudi Arabia and Russia sparked the biggest daily rout since the 1991 Gulf War, but investors saw little chance of a quick price recovery as the coronavirus cuts demand.
Saudi Arabia and Russia both said they would raise production at the weekend after a three-year pact between them and other major oil producers to limit supply fell apart on Friday.
Brent crude futures rose $1.41, or 4.1 per cent, to $35.77 a barrel by 0034 GMT, while US West Texas Intermediate (WTI) crude gained $1.25, or 4 per cent, to $32.38 a barrel following declines of nearly 25 percent on Monday.
Both benchmarks dropped to their lowest since February 2016 in the previous session and recorded their biggest one-day percentage declines since January 17, 1991, when oil prices fell at the outset of the US Gulf War.
Trading volumes in the front-month for both contracts hit record highs in the previous session.
But analysts do not expect oil prices to regain the nearly 25 per cent slump from Friday’s close as the coronavirus outbreak cuts demand.
“Oil prices rarely stay below the marginal cash cost of supply. But with the anticipated inventory build in (the first half) we struggle to find conviction in a snap back for oil,” analysts from Bernstein Energy said in a note.
Energy stock prices have also fallen sharply, and shale producers began cutting spending in anticipation of lower revenues. Exxon shares lost more than 12 per cent, the largest one-day percentage loss since October 15, 2008, the height of the financial crisis. Chevron’s shares fell more than 15%, the biggest loss since the October 1987 “Black Monday” market crash.
Saudi Arabia plans to boost its crude output above 10 million barrels per day (bpd) in April from 9.7 million bpd in recent months, two sources told Reuters on Sunday. The kingdom slashed its export prices at the weekend to encourage refiners to buy more.
Russia, one of the world’s top producers alongside Saudi Arabia and the United States, also said it could lift output and that it could cope with low oil prices for six to 10 years.
One the demand side, the International Energy Agency said oil demand was set to contract in 2020 for the first time since 2009. The agency cut its annual forecast and said that demand would contract by 90,000 bpd in 2020 from 2019.