Oil alternated between gains and losses in a volatile trading session that at one point saw U.S. crude drop more than 20%. Traders continue to eye dwindling storage capacity worldwide, although some of the losses were offset by optimism around reopening of economies.
West Texas Intermediate futures for June delivery fell 44 cents, or 3.4%, to settle at $12.34 per barrel, while international benchmark Brent crude gained 47 cents, or 2.35%, to settle at $20.46. Earlier WTI had been down more than 20%, touching a session low of $10.07, while also trading as high as $13.69.
Bjornar Tonhaugen, head of oil markets at Rystad Energy, said that oil moved off its lows on hopes that economies will soon reopen.
"A ramp up in business activity will give a boost in US domestic oil demand, which can postpone filling the country's oil storage a bit further in the future," he told CNBC in an email. But he was quick to caution that demand will continue to stay depressed.
"US reopening industrial activity can give a temporary boost to prices as traders need space to breath, but we don't expect the levels to last. Oil prices will likely average at 20 USD per barrel in the second quarter, with the lowest levels coming sometime in May," he added.
On Monday, WTI fell 24.56%, or $4.16, to settle at $12.78 per barrel. Brent crude fell 6.76% to settle at $19.99. Each contract is coming off its eighth week of losses in nine weeks.
As demand drops more and more producers have announced production cuts. But some believe it won't be fast enough to combat the unprecedented fall-off in demand from the pandemic.
Earlier in April, OPEC and its oil-producing allies agreed to a record production cut that will take 9.7 million barrels per day off the market beginning Friday, while Exxon and Chevron are among the U.S.-based companies that have scaled back operations.
"Despite the forthcoming OPEC+ production cuts, more production needs to be cut – particularly in the US and Canada to avoid tank tops by June," S&P Global Platts' global head of analysis Chris Midgley told CNBC in an email.
Last week the International Monetary Fund said that the global economy is expected to shrink by 3% this year, which Midgley said will lead to slower recovery in demand for oil.
Prices were also pressured on Monday after the United States Oil Fund, which trades under the ticker 'USO' and is popular with retail investors, said it would sell all of its contracts for June delivery beginning Monday, in favor of longer-term contracts.
"The move [by the USO] is a recognition of the bleak prospects for the US oil sector in May and June," said Cailin Birch, global economist at The Economist Intelligence Unit.
WTI and Brent are both on pace for their fourth straight month of losses for the first time since 2017.
Last Monday WTI plunged into negative territory for the first time in history as holders of the contract for May delivery — which was set to expire the next day — scrambled to sell their contract. But with oil demand not expected to recover anytime soon, and with nowhere to store oil, there was no buyer on the other side. In the end, the contract holders had to pay to have it taken off their hands.
And traders are saying the same fate could befall the June contract as it approaches expiration on May 19.
"Will we hit -$100/bbl next month?" Mizuho analyst Paul Sankey wrote in a note to clients last week, to which he answered, "quite possibly." "The physical reality of oil is that it is difficult to handle, volatile, potentially polluting, and actually useless without a refinery," he added.
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