Oil price jumps 25% after reports that storage demand has dropped, and progress on a coronavirus treatment boosts markets

FILE PHOTO: An oil pump jack pumps oil in a field near Calgary, Alberta, Canada on July 21, 2014.  REUTERS/Todd Korol
An oil pump jack pumps oil in a field near Calgary Reuters

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Oil prices rebounded on Wednesday, after reports that a key measure of oil inventories showed lower than expected demand for storage and oil-focused exchange traded-funds appear to have finished selling June futures contracts.

West Texas Intermediate crude futures rose 25% to $15.45 a barrel as of 9.40 a.m. ET. The international benchmark Brent crude rose 8% to $24.55 a barrel. 

Wednesday's gains came after the American Petroleum Institute reportedly said that US oil inventories rose by just shy of 10 million barrels last week. That was significantly lower than the 12 million barrel increase expected by analysts, the Financial Times reported. Those figures suggest that storage demand amid the coronavirus is slowing, a likely boost for market sentiment.

Market sentiment also got a big boost during early US trading after biotechnology company Gilead announced a key step in creating a treatment for coronavirus.

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The oil market has been in turmoil with mounting hedge fund selling and after prices tanked again by 21% on Tuesday. 

Read more: The manager of the best small-cap fund of the past 20 years explains why he's betting big on a consumer recovery — and shares his top 4 stock picks in the struggling sector

Analysts, however, warned that gains are likely to be short-lived, with one predicting "carnage" in the oil market in coming weeks.

"Carnage will remain as long as the market remains so incredibly imbalanced and we get closer to mid-May when storage facilities are expected to be full to the brim," said Craig Erlam, senior market analyst at OANDA. "Those cuts can't come soon enough."

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"Oil trade will remain volatile, but any major relief rallies will likely be heavily sold into until the entire energy space starts delivering deeper production cuts," according to Edward Moya, another senior market analyst at OANDA. 

"Given that inventory increases are still running at extreme rates we may still be seeing such violent moves in WTI futures without the fund rolls," analysts at Deutsche Bank said. 

The US Energy Information Administration's inventory report and the release of global floating storage data later today would be noteworthy.

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