The oil price is experiencing further volatility in today’s trading session, following on from yesterday’s losses, after U.S. crude inventories jumped significantly higher, raising fears about the current oversupply of oil in the market.

U.S. crude inventories shot up by 1.7 million barrels last week, according to figures released by American Petroleum Institute (API), which was well above analysts’ expectations for a figure of 300,000 barrels.

The oversupply issue is exasperated by forecasts from the energy watchdog, The International Energy Agency, which expects global oil demand to drop by 8.1 million barrels a day in 2020 and will be the largest reduction in demand ever recorded.

Some now predict that for oil to sustain the current rally, the market has to work through the estimated 1.3 billion barrels added so far this year, and as long as inventories keep building, this figure will only increase, and the key to a reduction, may be the ongoing trade negotiations between the US and China.

White House trade adviser Peter Navarro spooked the oil market by noting that the trade deal negotiated with China was “over” which forced US President Donald Trump to step in and note the deal was “fully intact.” which left investors confused on who to believe. The deal between the world’s 2 superpowers is seen as crucial to any long-lasting recovery in the global economy as a whole and indeed, the oil price.

Markets are also worried about the new cases of the coronavirus developing in these 2 countries and in Beijing for example, cars are almost non-existent on the roads as the Chinese government tries to contain a possible 2nd outbreak of the virus.

Oil guzzling states in the US such as Texas, are also starting to see a rise in coronavirus cases which is sending shockwaves through the US economy at a time when the country seemed to be getting on top of things.

One factor that may offset the worries between China and the US, as well as coronavirus fears is that members of the Organization of the Petroleum Exporting Countries (OPEC) and allies which are known as OPEC+ are sticking to their agreements for production cuts agreed to earlier this year which is something that has been elusive in the past.