Crude rebounded on Tuesday as companies shut down some U.S. Gulf of Mexico oil production ahead of an approaching storm, although surging coronavirus infections and rising Libyan supply limited gains.
Companies including BP, Chevron, and Equinor ASA evacuated rigs or closed facilities. So far producers have shut 16%, or 294,000 barrels per day (bpd) of oil output due to Zeta, which was a hurricane on Monday but weakened to a tropical storm early on Tuesday, the U.S. National Hurricane Center (NHC) said.
The storm-induced bump in prices may be short-lived, however, with demand expected to weaken anew with coronavirus cases rising.
"As long as the threat of renewed partial lockdowns exists, the oil complex will need to price in some renewed softening in demand," said Jim Ritterbusch, president of Ritterbusch and Associates.
Brent crude was up 58 cents, or 1.4%, at $41.03 per barrel. U.S. oil gained $1.01, or 2.6%, to settle at $39.57 per barrel. Both contracts fell more than 3% on Monday.
Libya's production should rebound to 1 million bpd in coming weeks, complicating efforts by other OPEC members and allies to restrict output.
The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, are planning to increase production by 2 million bpd from January after record output cuts this year. That would cut overall reductions to 7.7 million bpd - still an enormous amount by the standards of major oil producers, but it may not be enough to offset weak demand.
Russian President Vladimir Putin, speaking last Thursday, did not rule out extending the cuts for longer.
"As the virus continues to spread, the odds of additional OPEC + production tends to diminish in helping to provide some balance to the market," Ritterbusch said.
The latest weekly U.S. oil inventory figures, due later on Tuesday and on Wednesday, are expected to show rising supplies. Analysts polled by Reuters expect crude stocks to rise by about 1.1 million barrels.