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It is not a risk that portfolio managers typically cite as their biggest concern, but the rapid rebound in oil has suddenly raised the question: are higher crude prices a danger?

The sharp rise in the price of oil has buoyed the shares and debt of US energy groups since mid-February and coaxed investors to open their wallets and lend to oil and gas drillers.

Now some investors are warning that the dazzling rally may have pulled the market ahead of fundamentals — given that the current supply glut may not ease until 2017 — and indeed, on Tuesday, this week’s retreat in crude gathered pace. Further weakness in the price of oil is seen prompting higher volatility in the sector that spills across bond and equity markets.

Sentiment remains fragile as the existing risks associated with prices re-rated at low levels persist. Defaults have been steadily climbing this year, reaching 10 per cent in March, up from 8 per cent in February. A year ago the trailing default rate stood at 0.9 per cent, according to data from Fitch Ratings. Analysts at the rating agency expect defaults will swell even further, approaching 20 per cent by the end of 2016.

Already, defaults have surpassed $14.1bn this year, near to the $17.5bn seen for all of 2015.

“With crude still trading in the $30-$40 range, this still implies a lot of operators will struggle and likely go bankrupt,” says Jeff Sitzmann, who co-manages the Buffalo High Yield Fund, which is still broadly steering clear of the energy sector.

Jack Flaherty, investment director at GAM, says one of his biggest concerns was that the slight rise in crude prices could lure lower-cost swing producers back to market, exacerbating the oversupply that has plagued energy companies.

It is a warning that has also been heard from Goldman Sachs, which last week told clients that an oil price near $40 a barrel could prove “self-defeating”, encouraging US producers to turn back on the pumps.

“I’m concerned that American producers will potentially be [tempted] to produce again, which will prolong the oversupply dynamic, and this little rally will just come crashing down,” says Leslie Biddle, a partner at Serengeti Asset Management.

Such concerns radiate across the market.

“The fundamentals in the oil market have not changed,” says Sabur Moini, a high yield portfolio manager with Payden & Rygel. “There is still too much supply, too much inventory. There’s potential for more inventory to come on line from Iran. Opec is not cutting production.”

Renewed focus on the fundamentals underpinning the oil market will probably challenge the recent recovery seen in bond and equity markets for energy companies.

The premium investors now demand to hold the debt of the riskiest American energy companies over US Treasury yields, known as the risk-free rate, has narrowed by about a third in just a month after reaching a record high on February 11, according to data from BofA Merrill Lynch.

Many energy stocks have raced higher from their lows of the year. The S&P 500 exploration and production sector, which had declined 21.8 per cent for the year on January 20, has subsequently climbed 24.9 per cent. The broader S&P 500 has only risen 8.5 per cent over the same period.

The rebound in oil prices from February’s lows made energy companies, especially those with weaker balance sheets that had been shunned earlier in 2016, look more appealing. The rally then accelerated as investors jumped into the market hoping not to miss a bottom and others were forced to cover short positions.

“Everyone wants to say that they picked the bottom,” says Ms Biddle.

Shares of Chesapeake Energy rallied 84 per cent over the course of three days this March, while bonds issued by the highly indebted group that mature in 2022 have nearly tripled from a February low. Investors holding debt sold by Whiting Petroleum, Denbury Resources, Oasis Petroleum and Continental Resources have rebounded, with Continental bonds due in 2022 completely reversing losses recorded in December and January.

On Monday, Anadarko Petroleum secured $3bn to refinance some of its debt maturing in 2016 and 2017. The sale followed multibillion-dollar bond deals from ExxonMobil and ConocoPhillips, as the market reopens to higher rated investment grade energy companies.

Whether investors have any appetite for helping junk-rated companies refinance their debt is very much open to question as the supply-demand imbalance hangs over the market.