Crude rebounds after sharp fall but outlook remains bleak

1045 GMT: Crude oil futures recovered slightly in mid-morning trade in Asia Tuesday, after prices plunged Monday, though the outlook for oil remains bleak amid concerns of weakening demand and growing supply.

At 10:45 am Singapore time (0245 GMT), May ICE Brent crude futures were up $1.99/b (5.79%) from Monday's settle to $36.35/b, while the NYMEX April light sweet crude contract was $1.48/b (4.75%) higher at $32.61/b.

Bearish concerns loomed as oil producers may potentially ramp up production to gain market share, while economic prospects and downstream demand continue to take a hit amid the global spread of the coronavirus.

"The uncertainty around the state of the oil and more broadly, energy market, as well as the continued spread of the coronavirus has left investors grasping at straws," Mizuho Bank analysts said.

Crude futures plunged more than $10/b Monday after Saudi Arabia slashed official selling prices for its crude grades. This comes after OPEC and its allies last week failed to come to an agreement on cutting production to offset the impact of the coronavirus.

The sharp decline Monday was triggered by expectations that other Middle East producers would follow Saudi Arabia's lead, driving prices lower amid a battle for market share.

"Although we have seen prices coming off from a lower starting point compared to the 2014 episode, this [latest decline] is also set against a poorer demand backdrop with the coronavirus disruptions that had led the market to hazard a thought for even lower prices," IG market strategist Pan Jingyi said Tuesday.

"Despite the fact that lower oil prices benefit consumers, the plunge towards sub-$30 levels would be difficult for even the major producers to bear as seen in early 2016," Pan added.

The Russian government Monday said the domestic economy could withstand oil prices falling to $25-$30/b and that Russia would maintain its share of the global oil market after the ruble hit a four-year low against the dollar.

Russia had refused to sign a deal with OPEC and its non-OPEC allies on additional production cuts for the rest of 2020.

According to energy minister Alexander Novak, Russia and other producers are free to pump oil at will after the current OPEC+ deal expires on April 1.