SINGAPORE (Reuters) – U.S. crude oil bounced back into positive territory on Tuesday, but a historic plunge below zero rattled investors and triggered the steepest drop in Asian stock markets in a month.

FILE PHOTO: A pedestrian wearing a face mask walks near an overpass with an electronic board showing stock information, following an outbreak of the coronavirus disease (COVID-19), at Lujiazui financial district in Shanghai, China March 17, 2020. REUTERS/Aly Song/File Photo

Traders could not give away West Texas Intermediate overnight after a storage squeeze turned holders of the contracts expiring later on Tuesday to forced sellers.

A $39 rise leaves the price for May delivery at $1.38 per barrel and investors unnerved about further dislocation.

MSCI’s broadest index of Asia-Pacific shares outside Japan lost 2%, as did the Nikkei, EuroSTOXX 50 futures and FTSE futures. E-mini futures for the S&P 500 fell 0.5%, while bonds and the dollar rose.

“The (oil) price action was scary,” said Kyle Rodda, market analyst at IG Markets in Melbourne. “It points to the fact that supply and demand has been destroyed.”

The collapse also came together with more signs of a slow and difficult recovery from the COVID-19 pandemic.

The World Health Organization warned that any lifting of lockdowns to contain the spread of the novel coronavirus must be gradual, and if restrictions were to be relaxed too soon, there would be a resurgence of infections.

Hong Kong’s government said it will extend restrictions aimed at tackling the coronavirus for another two weeks.

German Chancellor Angela Merkel cautioned shoppers rushing to just-reopened stores that lockdown measures could be tightened again if fresh cases arise.

And in the United States, a return to work is looking increasingly chaotic, as some states relax lockdowns while others urging caution faced demonstrators demanding an end to restrictions.

“There is little room for complacency,” DBS strategists Philip Wee and Eugene Leow said in a note.

“Weak oil prices and China’s negative growth are reminders that the coronavirus has hurt demand.”

Stock markets in Sydney, Hong Kong and Shanghai fell around 2%.

South Korea’s KOSPI and won dived after CNN reported that North Korean leader Kim Jong Un was gravely ill, but recovered somewhat after South Korean government sources said the story was untrue.

(GRAPHIC: U.S. crude oil’s historic crash below zero – here)

AWASH IN OIL

Monday’s plunge in U.S. crude came as the May contract expiry looms at the end of Tuesday trade.

Stabilization just above zero and June prices at $21 per barrel point to some relief.

International benchmark Brent crude, more readily seaborne than its U.S. counterpart, held around $25.38 per barrel. That is still some 60% under January’s peak, highlighting the disruption to energy consumption and the long road back to solid global growth that underpins oil demand.

“Even as, or if, virus containment measures ease in the coming weeks, the world is going to be awash in oil for some time,” said Kerry Craig, global market strategist at J.P. Morgan Asset Management. “Economies may be slow to get back up and running to a pace that would warrant a strong increase in demand.”

That had bond markets priced for caution and the safe-haven dollar in the ascendancy. The dollar rose against the euro, yen, pound and Antipodean currencies.

It last stood at $0.6300 per Aussie and at a one-and-a-half week high of $1.2400 per pound.

The yield on benchmark 10-year U.S. Treasuries, which falls when prices rise, dropped under 0.6% to 0.5988% in afternoon trade.

Reporting by Tom Westbrook in Singapore, Katanga Johnson in Washington and Herb Lash in New York; Editing by Kim Coghill and Jacqueline Wong

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