US oil prices surged Wednesday after falling below zero for the first time at the start of the week as markets drown in crude due to a coronavirus-triggered collapse in demand.
US benchmark West Texas Intermediate for June delivery was up almost 10 per cent at $12.68 a barrel, paring gains of around 20 per cent at the open in Asia.
WTI for May delivery on Monday collapsed to an unprecedented low of minus $40.32 as traders scrambled to sell it before the contract expired Tuesday, but could find few buyers with storage capacity fast filling up.
The negative prices meant that traders were forced to pay to have the crude taken off their hands.
European benchmark Brent crude for June delivery bounced more than two percent at the open, but then reversed gains and was trading around three per cent lower, with a barrel changing hands for $18.73.
It had tumbled to an 18-year low the previous day.
Stephen Innes, chief market strategist from AxiCorp, said traders were buying at bargain prices, and markets also received a boost following discussions between top producers.
Several member states from exporting group OPEC, as well as some allies in the OPEC+ grouping, held a teleconference Tuesday to discuss the “dramatic” situation on oil markets.
But it was unclear whether OPEC kingpin Saudi Arabia took part, while Russia’s energy minister did not participate.
“Profit-taking set in after the OPEC+ alliance reportedly held an unscheduled conference call overnight,” Innes said.
The market is under heavy pressure due to massive oversupply as lockdowns and travel restrictions introduced worldwide to stem the spread of the virus hammer demand.
US crude has been particularly hard-hit due to storage problems, as WTI is delivered at a single, inland point.
The crisis was worsened by a price war between Saudi Arabia and Russia. They drew a line under the dispute earlier this month and, along with other top producers, agreed to slash output by almost 10 million barrels a day to shore up virus-hit markets.
But that has had little effect, with prices continuing to plummet, as analysts predict it will not make up for the massive hit to demand.
Jingyi Pan, market strategist with IG, predicted prices would stay low for now.
“The overtly bearish sentiment may well keep prices suppressed in the near-term until we find the light at the end of the tunnel with progressive resumption of halted economic activities across the globe,” she said in a note.