Oil prices are recovering as producers slash output and demand starts coming back, but analysts warn there's a big asterisk next to the trend: the trajectory of the coronavirus pandemic.

Driving the news: Brent crude is trading around $31.97 this morning compared to its April trough below $20, while prices for the U.S. benchmark WTI have roughly doubled over the last two weeks to around $28.62.

Where it stands: "Market forces have aligned producers around the world to support fundamentals, and demand is increasingly showing signs of having troughed," Barclays says in a note this morning.

• But it adds: "Prices are likely to remain under pressure over the very short term, especially amid significant uncertainties regarding the pace of recovery in the broader economy."

Threat level: But prices remain very low, and it will be a long road back as a huge glut is burned off and the global economy remains deeply wounded.

• And here's the thing: The market's recovery could unravel if easing restrictions creates a surge in new infections, analysts warn.

What they're saying: "We believe stocks will be reduced gradually over the next 12 months or so. All bets though hinge upon avoiding a second wave of the coronavirus, which is yet to be seen as countries remove lockdowns around the world," Rystad Energy's Bjørnar Tonhaugen writes in a note this morning.

• Vandana Hari of Vanda Insights tells Bloomberg: “Market sentiment has turned cautiously constructive since the end of April and I expect it to remain as such unless there are major setbacks in terms of infection rates.”

Threat level: A lot of the impact of the collapse is too late to avoid — both for the industry and beyond.

• This year's downturn in oil markets is likely to create a substantial drag on the wider U.S. economy as energy companies slash spending, Dallas Fed economists say in a new analysis.

Why it matters: It shows how the U.S. production boom over the last decade-plus has raised the economic stakes when the industry thrives — or takes a gigantic hit, which is happening now as the sector sheds jobs and cuts spending.

What they found: "The decline in oil and gas capital expenditures will be a major drag on U.S. business fixed investment in second quarter 2020," the report states, noting this investment is an important part of GDP.

• "We estimate that investment declines in the energy sector alone may lead to a 6.1-percentage-point decline in U.S. fixed investment in the second quarter," it finds (emphasis added).

The Dallas Fed report helps put the industry's response to the price and demand collapse into historical context too.

• They find that U.S. producers' capital spending will decline by at least 35% in the second quarter en route to an even steeper annual decline.

Why it matters: That's bigger than declines in the 2008-2009 financial crisis and the oil price collapse in the mid-2010s (check out the chart above).

• The number of drilling rigs deployed, which is a metric of current activity and future output, has greatly slid.

Don't forget: Prices also remain far below profitable levels for wide swaths of the distressed sector in the U.S. and elsewhere.

• A separate Dallas Fed survey of energy companies in their region found that prices needed to cover operating expenses at existing wells averaged $23 to $36 per barrel.
• And the surveys from the Dallas Fed and the Kansas City Fed (which covers producing states including Colorado, Wyoming, and Oklahoma) show prices are nowhere near what's needed to profitably drill new wells.

Meanwhile, jobs losses are piling up. The Houston Chronicle reports that another 1,000 job cuts in the industry were announced in Texas just this week.

A new analysis finds that the steep U.S. greenhouse gas emissions decline stemming from the COVID-19 pandemic will have little effect on long-term trends under current policies.

What they did: The firm Energy Innovation modeled the emissions and energy demand effects of the pandemic using gross domestic product estimates from Goldman Sachs, the International Monetary Fund and the Energy Information Administration.

What they found: Their analysis sees the drop in U.S. emissions ranging 7% to 11% in 2020 compared to 2019 levels — and then coming back over the next few years.

• "[E]missions will likely approach pre-COVID-19 levels by 2025 and COVID-19 is not likely to have a material impact on annual emissions in 2030 or cumulative emissions through 2050," they conclude.

What they're saying: Report author Megan Mahajan tells Axios that "the right stimulus response could change that business-as-usual trajectory."

• "If the government’s COVID response includes green investments and smart policy, the U.S. could recharge the economy by kick-starting clean industries with the potential for serious decarbonization."

Oil giants' pace of clean energy deals has slowed greatly as oil prices have collapsed, the research firm BloombergNEF said in a tally of activity by ExxonMobil, Chevron, Shell, BP and others.

What they found: "Up to 14 deals were announced in 1Q 2020, with only three reaching completion. This compares with 17 deals closed in 1Q 2019," the firm said in a brief note.

Why it matters: The findings provide an early look at how the pandemic is affecting near-term activity, even as European giants like Shell, BP and Total have announced or re-affirmed their long-term climate goals.

The big picture: "Longer-term, the low-carbon ambitions of the European majors are unlikely to be affected, but a prolonged period of low oil prices could inhibit the ability of the oil sector to invest in clean energy," they conclude.

PPP loans: "Oil extraction and mining businesses had the best success in getting loans from the Paycheck Protection Program with more than half of businesses surveyed in that sector reporting getting some help, according to the Census Bureau’s Small Business Pulse Survey." (AP)

Electric cars: Tesla "plans to introduce a new low-cost, long-life battery in its Model 3 sedan in China later this year or early next that it expects will bring the cost of electric vehicles in line with gasoline models, and allow EV batteries to have second and third lives in the electric power grid." (Reuters)

Climate: "BP has called on governments to 'press ahead' with commitments to tackle climate change even if they find their budgets under strain in the aftermath of the coronavirus pandemic." (FT)

Regulations: "The Trump administration will not impose any limits on perchlorate, a toxic chemical compound that contaminates water and has been linked to fetal and infant brain damage, according to two Environmental Protection Agency staff members familiar with the decision." (NYT)