GLOBAL – Oil prices which have been free falling in the past months finally jumped over 8% on Tuesday, bouncing from the biggest dip in nearly 30 years a day earlier.

According to a report by Reuters, the possibility of economic stimulus from the Trump administration and the move by U.S. producers to slash spending could have resulted in price appreciation due to increased demand.

U.S. President Donald Trump has pledged “major” steps to gird the U.S. economy against the impact of the spreading coronavirus outbreak.

 Japan’s government has also announced plans to spend more than US$4 billion in a second package of steps to cope with the virus.

Reuters reported that the U.S. shale producers, including Occidental Petroleum Corp, deepened spending cuts that could reduce production.

The news from the United States led to Brent futures LCOc1 rising by US$2.86, or 8.3%, to settle at US$37.22 a barrel.

The U.S. West Texas Intermediate (WTI) crude on the other hand, CLc1 rose by US$3.23, or 10.4%, to settle at US$34.36.

Both benchmarks had earlier plunged to their lowest since February 2016, their biggest one-day percentage declines since Jan. 17, 1991, at the outset of the first Gulf War.

The plunge was as occasioned by Saudi Arabia, the world’s biggest oil exporter, which escalated tensions with plans to supply 12.3 million barrels per day (bpd) in April, well above current production levels of 9.7 million bpd.

The news caused shock waves in the oil industry resulting in in oil erasing over a third of its value making OPEC members to start shedding over $500 million a day in lost revenue.

While commenting on the situation, RBC analysts said, “Price wars and pandemics are nothing new to the commodity markets, but both occurring simultaneously is something we have yet to witness in our careers.”

It is yet to be seen how the situation will affect oil dependent economies.

The world’s top rating agencies have already sounded an alarm saying that the sharp drop in oil prices, if sustained, could cause a wave of sovereign downgrades as well as heavy multi-notch rating cuts to junk-rated oil and gas firms.