Traders remain concerned that China's oil demand could take a further hit if coronavirus cannot be contained as China will cut as much as 940,000 barrels per day (bpd) from their crude runs in February due to the virus
Oil prices rose more than 1% on Tuesday in sympathy with a rally in equity markets but investors remained jittery over the Wuhan virus that has now killed over 1,000 in China.
Brent crude rose 70 cents, or 1.3%, to $53.97 a barrel by 0428 GMT, retreating from an intraday high of $54.13. US West Texas Intermediate was up 61 cents, or about 1.2%, at $50.18 a barrel.
"A broad positive sentiment across Asia markets seems to have boosted crude oil prices," Margaret Yang, market analyst of CMC Markets, told Reuters.
"The rebound is mild and might be short-lived as China's energy demand is likely to remain soft in the near term due to virus impact. OPEC+ and Russia will need to come out with a cohesive output cut plan to shore up oil prices," she said.
The number of coronavirus deaths in mainland China have now reached 1,016, its National Health Commission said, and the number of cases has topped 42,600.
The virus has also spread to two dozen other countries, with the head of the World Health Organization (WHO) cautioning on Monday that the cases outside of China could be "the spark that becomes a bigger fire".
Traders remain concerned that China's oil demand could take a further hit if the coronavirus cannot be contained. Chinese state refiners have already said they will cut as much as 940,000 barrels per day (bpd) from their crude runs in February due to the virus.
"China's refiners are processing 15% less crude and that could get a lot worse if the virus doesn't peak this month," Edward Moya, senior market analyst at OANDA, told Reuters.
"OPEC+ appears to be stuck in a wait-and-see mode ... Russia can live with $40 oil (and) thus might not be so eager to play ball with the other OPEC+ members in delivering another 600,000 bpd in production cuts," Moya said.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, a grouping known as OPEC+ and including Russia, proposed the additional cuts last week, but Russia said on Friday it needed more time to decide whether to join in any further output reductions.
The coronavirus outbreak could trim China's full-year economic growth rate by as much as 1 percentage point in 2020, said the Chinese government think tank National Institute for Finance and Development.
US crude oil stocks, meanwhile, were estimated to have risen for a third straight week, by 2.9 million barrels for the week ended on February 7, a preliminary Reuters poll showed on Monday.
Oil supplies out of Brazil have also been growing, with Petrobras having hit a new production record in the last quarter of 2019 at more than 3 million barrels of oil equivalent per day.