Oil prices rose around 4 per cent on Tuesday on hopes that the United States will soon reach a deal on a $2 trillion coronavirus aid package that could blunt the economic impact of the outbreak and in turn support oil demand.
Brent crude oil futures for May delivery rose by $1.05 a barrel, or 3.9 per cent, to $28.08 a barrel by 0732 GMT while West Texas Intermediate (WTI) crude futures gained $1.20 cents, or 5.1 per cent, to $24.56.
"Oil is clawing its way higher, mainly on the back of the weaker dollar that stemmed from the Fed's unprecedented measures," said Edward Moya, senior market analyst at broker OANDA.
"WTI crude volatility will remain high and traders should not be surprised if this rally eventually gets faded."
The US Federal Reserve on Monday rolled out an extraordinary array of programs to backstop an economy reeling from restrictions on commerce that scientists say are needed to slow the coronavirus pandemic.
While a $2 trillion coronavirus economic stimulus package remained stalled in the US Senate on Monday as lawmakers haggled over its provisions, US Treasury Secretary Steven Mnuchin voiced confidence that a deal would be reached soon.
The expected stimulus pushed the US dollar lower as it will increase the cash supply. The dollar index. which measures the greenback against six major currencies, fell 0.5 per cent on Tuesday.
A weaker greenback boosts dollar-denominated oil prices since buyers paying in other currencies will pay less for their crude.
Still, the overall crude demand outlook remains low as long as travel restrictions are in place and governments curtail commercial activities to prevent the coronavirus spread.
Prices and profit margins for motor and aviation fuels globally are under severe pressure from a plunge in demand as countries enforce lockdowns and airlines ground planes, forcing more refineries to reduce output and lower their crude oil demand.
Concerns over oil demand were also stoked by a doubling of new coronavirus cases in China, the world's biggest oil importer, caused by a jump in infected travellers returning home from overseas. That is raising the risk of transmissions in Chinese cities and provinces that had seen no new infections in recent days.
"The anticipated lengthy absence of air traffic presents a significant obstacle in its own right," said Stephen Innes, chief global markets strategist at AxiCorp, adding that an expected ramp up in supply could lead to plummeting prices once oil storage has filled. --Reuters