US crude futures hovered above $32 per barrel on Tuesday, ahead of the June contract expiry, allaying fears of the benchmark plunging below zero again.
West Texas Intermediate, the main US gauge, was up 1.79 per cent trading at $32.39 per barrel, while Brent, the international crude benchmark, was up 0.43 per cent at $34.96 per barrel at 4.29pm UAE time.
WTI's July and August contracts meanwhile traded at $31.84 per barrel and $32.39 per barrel.
Analysts remain optimistic with WTI's front-month contract up for expiry, a repeat of the benchmark's crash into sub-zero levels is unlikely.
US crude futures plummeted to as low as -$40 towards the expiry of the May contract last month, as storage capacity at the benchmark's physical delivery point, Cushing, Oklahoma neared saturation.
"With declining concerns of hitting tank tops, the likelihood of going below zero in the near term is close to zero," said Giovanni Staunovo, commodity analyst at Swiss bank UBS.
Inventories at the landlocked physical delivery point fell 3 million barrels last week, according to the US Energy Information Administration, easing concerns of storage capacity.
"Lower imports from Canada and likely more outflows towards the Gulf region (which has more storage capacity) but also falling US crude production have helped in seeing those inventory draws," said Mr Staunovo.
WTI's latest rally, which comes on the back of output cuts implemented by the oil exporting countries of Opec+ alliance and production shut-ins in North America, has narrowed the spread between the world's two most widely used benchmarks.
UBS expects the spread of Brent and WTI to average around $3 per barrel over the coming months.
"With the spread back around the fair level, a narrow spread could happen if US production falls much faster going forward and demand recovers quicker than we expect. A narrow spread would result in higher US crude imports and weigh on US crude exports," said Mr Staunovo.
Global equity markets also rallied yesterday as news of a possible vaccine lifted sentiments. The gradual easing of lockdown measures in several worst-hit parts of Europe such as Italy and Spain could boost the consumption of fuel as people take to the roads. Meanwhile, China- a major oil consumer - saw activity pick up as well.
"The fears about exhausted storage and an overflowing oil market made way to expectations about a soon ebbing of the supply glut. Travel activity and thus road fuel demand is recovering swiftly as countries ease lockdown measures," said Norbert Rücker, head economics and next generation research at Julius Baer
"China, the first country sucked into and reeling out of the corona crisis, is experiencing excessive traffic congestion again, in part because public mass transport remains out of favour," he added.
Global energy organisations have softened their outlooks for demand drop in 2020. The IEA revised its annual demand forecast up by 700,000 barrels per day, bringing the decline to 8.6 million bpd. The IEA had previously forecast a decline of 9.3m bpd for 2020.
