Oil prices jump over $1 as sharp falls draw bargain buyers

SINGAPORE (Reuters) – Oil rose more than $1 on Tuesday as bargain hunters emerged after recent sharp falls due to the coronavirus pandemic and the price war between Saudi Arabia and Russia, but fears of a recession still dragged on the market.

Brent crude LCOc1 was up by 3%, or 89 cents, to $30.94 a barrel by 0746 GMT, after hitting a high of $31.25.

U.S. West Texas Intermediate (WTI) crude CLc1 rose 4.7%, or $1.36, to $30.06, having come off a high of $30.21.

“Presumably, the market is getting supported by physical bargain hunters and short covering,” said Stephen Innes, chief markets strategist at AxiCorp.

The United States has said it will take advantage of low oil prices to fill its Strategic Petroleum Reserve (SPR), and other countries and companies are planning similar measures to fill storage tanks.

“But those storage facilities are rapidly filling. If storage does fill, quashing that demand, oil prices are sure to collapse further, and 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,” Innes said.

Amid heavy demand loss from the global spread of the virus that causes COVID-19, Saudi Arabia and Russia started a price war after failing to agree to extend their pact to cut output to support the market.

Saudi Aramco 2222.SE has said it would likely carry over its planned higher oil output for April into May, and that it was “very comfortable” with an oil price of $30 a barrel.

“Much focus is also falling on the Russians and Saudis, with no expectations for either side to blink unless oil collapses toward the $15 region… If we see oil falls below the $20 level, the Saudis may decide to come back to the negotiating table, however maybe just with OPEC and not the Russians,” said Edward Moya of Oanda.

Countries including the United States and Canada, and nations in Europe and Asia, in the meantime are taking unprecedented steps to contain the virus, severely crippling demand for crude and refined products including gasoline and jet fuel.

Gasoline refining margins in the United States, the world’s largest consumer of the motor fuel, plunged around 95% on Monday, briefly turning negative, as people stayed off the roads.

U.S. President Donald Trump on Monday said economic disruptions from the spread of the coronavirus and measures taken against it could lead to a recession.

In Asia, margins for transportation fuels had also plunged after more countries imposed travel restrictions and curbed domestic movement as part of measures to slow the spread of the coronavirus.