The rebound in oil prices gained momentum following this week’s mammoth sell-off as the prospect of renewed tensions in the Middle East helped offset fears of a collapse in global demand due to coronavirus.
Crude has been pummelled in recent days on concerns that there is not enough space around the world to store the growing oil glut. Prices for the US benchmark at one point turned negative for the first time in history, meaning producers were forced to pay buyers to take oil off their hands.
But in Asia trading on Thursday, Brent continued its nascent recovery with the international oil marker adding 3.3 per cent to $21.04. A day earlier Brent fell below $20 for the first time since 1999. West Texas Intermediate rose 3.9 per cent to $14.24 a barrel.
Those gains came after US President Donald Trump on Wednesday ordered American warships to destroy any Iranian vessels that posed a threat. Mr Trump had declared in a tweet that he had “instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea”.
But Warren Patterson, head of commodities strategy at ING, said that fresh geopolitical tensions would only offer limited support for oil prices due to concerns the market is heavily oversupplied. Data from the Energy Information Administration showed that US crude inventories rose by more than 15m barrels in the week ending April 17.
“Given the glut we have in the oil market, it is difficult to see this offering lasting support to the market, unless the situation does escalate further,” Mr Patterson said.
He warned that inventories in Cushing, Oklahoma — a vital US storage point — would be likely to reach their capacity in the first half of May, “increasing downward pressure on WTI”.
Stocks across Asia-Pacific also gained on Thursday. Japan’s benchmark Topix index rose 0.7 per cent while Australia’s S&P/ASX 200 climbed 0.5 per cent. China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks added 0.3 per cent and Hong Kong’s Hang Seng was up 0.6 per cent.
Overnight on Wall Street, the S&P 500 closed 2.3 per cent higher as the energy sector helped lead a rally that snapped a two-day streak of falls.
Futures markets tipped the US stock benchmark to dip 0.2 per cent when trading begins later in the day.