Oil prices rose on Tuesday on government stimulus hopes, a day after the biggest collapse in prices in a single day since the Gulf War.
But continued tensions between Saudi Arabia and Russia threatened to derail the fragile recovery.
Saudi Arabia and Russia’s decision to launch a price war over the weekend had sent oil prices tumbling, with crude oil plummeting 30% at the open in Asia on Monday.
Crude (CL=F) and brent (BZ=F) prices both then leapt on Tuesday morning in London. Analysts at Deutsche Bank said it was “not entirely clear” what was driving the rebound, but pointed to an announcement of stimulus measures by Donald Trump.
Other world leaders have also announced new policies to protect and stimulate their economies amid the coronavirus outbreak, which are expected to boost demand for oil.
But Saudi Aramco’s announcement it will hike production to 12.3 million barrels a day on Tuesday dented the recovery. Crude, which had leapt 7.1%, slipped back to 5.1% higher at around 9.20am in London. Brent also slipped, and was trading 4.7% higher.
The Saudi state oil giant’s move is reported to put production levels above capacity, suggesting it could be releasing from its inventories. Bloomberg reports Russia’s energy minister responded within minutes, saying his country was able to boost production by 500,000 barrels a day.
The recovery came after Trump told journalists he planned “major” steps to safeguard the US economy late on Monday. He floated the idea of cutting or offering “very substantial” relief on payroll taxes, as well as assistance for insecure workers.
The Japanese government will also hike its finance support for small- and medium-sized firms to 1.6 trillion yen (£11.9bn, $15.6bn), according to Reuters.
Meanwhile Australian prime minister Scott Morrison said his plans to “keep businesses in business” would be unveiled on Tuesday, reported to be worth A$10 billion (£5.1bn, $6.6bn).
In Europe, both France and Italy urged governments across the eurozone to coordinate stimulus measures on Monday. Italian prime minister Giuseppe Conte promised “massive shock therapy” as the government announced the drastic measure of putting the whole of Italy on lockdown.
Early hopes of a settlement over the oil dispute may have also boosted prices.
“The fact is that investors aren’t thinking logically because there is no way that the oil war is in anyone’s favour. It isn’t going to take place now,” said Naeem Aslam, chief market analyst at Ava Trade, before Saudi Aramco’s production announcement.
Aslam said it was “only a matter of time” before members of the OPEC+ cartel reach an agreement on prices, as a sustained price war would damage all producers.