West Texas Intermediate for June delivery jumped more than 8% on Monday, one day ahead of the contract's expiration, as production cuts and the easing of stay-at-home restrictions supported prices. The contract did close below its highest levels of the day, however, after earlier gaining more than 13%.
"Producers are significantly throttling back output and, with demand increasing, the market is on a slow path towards recovery," said Rystad Energy's senior oil markets analyst Paola Rodriguez Masiu. "Faced with meager demand and unattractive low prices, production curtailments came faster and deeper than initially anticipated."
WTI, the U.S. benchmark, rose $2.39, or 8.12%, to settle at $31.82 per barrel. Earlier in the session it traded as high as $33.32 per barrel. International benchmark Brent crude, which has already rolled to the July contract, settled 7.11% higher at $34.81.
Monday's jump is in sharp contrast to just one month ago when, on the day before the contract for May delivery expired, prices plunged below zero and into negative territory for the first time in history. With much of the world still on lockdown and storage rapidly filling, people were worried that there would be nowhere to put the oil. The contract holders were left scrambling and ultimately would do anything — in this case, even pay to have it taken off their hands.
Since then, demand has begun to recover, and worldwide suppliers have reduced output in an effort to support the market. OPEC and its oil-producing allies took 9.7 million barrels per day offline beginning on May 1, and Saudi Arabia, Kuwait and UAE are among the group's nations that have said they will voluntarily cut production further. Beginning in June OPEC de facto leader Saudi Arabia said it would take an additional 1 million bpd offline.
In the U.S., data from the Energy Information Administration last week showed that production has dropped 1.5 million bpd below March's all-time high level of 13.1 million bpd. Gasoline demand has also started to show signs of recovery as states begin to reopen economies.
The more actively traded WTI contract for July delivery jumped 8% to trade at $31.89, while the contract for August delivery traded 7.4% higher at $32.33.
"Almost half a year into the outbreak of the coronavirus pandemic, which has seen an unprecedented shock to oil consumption as most the world's population has been locked in at home to slow the spread of the deadly Covid-19 illness caused by the virus, oil markets are reaching a turning point," Eurasia Group's Henning Gloystein said in a note to clients Sunday.
Oil is coming off its third straight week of gains, but prices are still well below January's high, when WTI traded above $60 per barrel.
Gloystein noted that for prices to maintain their upward trajectory, producers will have to maintain supply cuts into 2021.
Some are less optimistic that the oil market will be able to bounce back. Mizuho's Paul Sankey said Sunday that 2019 could have been the peak in terms of demand for oil. "Behavior changes are widely expected, particularly lower ongoing jet demand," he said in a note to clients.
U.S. producer Whiting Petroleum is among the companies in the oil patch that have filed for bankruptcy as producers struggle to breakeven with oil trading at depressed levels.
"With Oil around $30, U.S. shale remains under pressure and we expect further bankruptcy filings as smaller companies struggle to service debt," S&P Global Platts' head of analytics Chris Midgley said.
— CNBC's Michael Bloom contributed reporting.