Oil prices recovered some lost ground from a historic crash on Tuesday, with United States crude turning positive after trading below $0 for the first time ever.
Gains, however, were capped due to unresolved concerns about how the market can cope with an oversupply of crude as demand continues to be decimated by the coronavirus pandemic.
US West Texas Intermediate (WTI) crude for May delivery was up $38.73 at $1.10 a barrel by 01:17 GMT after settling at a discount of $37.63 a barrel in the previous session.
The May contract expires on Tuesday, while the June contract, which is more actively traded, jumped $1.72, or 8.4 percent, to $22.15 a barrel.
Although the negative price of US crude futures was merely a technical blip, it signals “demand devastation” as “nobody wants to store oil”, Stephen Innes, Asia Pacific market strategist at AxiCorp, told Al Jazeera.
“If it continues down this road, without any further cuts by OPEC, it would cause a lot of trouble – credit risks, banking risks, unemployment risks,” Innes said.
Global benchmark Brent crude for June delivery was up 49 cents, or 1.9 percent, at $26.06 per barrel.
“Demand destruction from COVID-19 will see a slower expected reopening of the US economy,” said Edward Moya, senior market analyst at broker OANDA, predicting a weak period for oil prices. “The WTI crude June contract was able to hold the $20 a barrel level and is seeing a modest gain following the painful rollover of the May contract.”
Oil prices have skidded as travel restrictions and lockdowns to contain the spread of the coronavirus curbed global fuel use, with demand down 30 percent worldwide. That has resulted in growing crude stockpiles with storage space becoming harder to find.
The main US storage hub in Cushing, Oklahoma, the delivery point for the US WTI contract, is now expected to be full within a matter of weeks.
“Today it’s pretty clear that a major issue in the market is a glut in the US and lack of storage capacity,” said Michael McCarthy, chief market strategist, CMC Markets in Sydney.
Faced with the situation, the Organization of the Petroleum Exporting Countries and its allies including Russia, a grouping known as OPEC+, have agreed to cut output by 9.7 million barrels per day. But that will not take place before May, and the size of the cut is not viewed as big enough to restore market balance.
OPEC+ will most likely consider deeper output cuts and the US will be more inclined to consider lowering supply as “everyone will come together” to support oil markets, Innes said
“There’s too much at risk,” he said, highlighting not only to investors involved in the financial markets for crude oil, but also the millions of people employed in the oil and gas industry.
Meanwhile, US crude inventories were expected to rise by about 16.1 million barrels in the week to April 17 after posting the biggest one-week build in history, according to five analysts polled by Reuters news agency. Analysts expected petrol stocks to rise by 3.7 million barrels last week.
The American Petroleum Institute is set to release its data at 4:30pm (20:30 GMT) on Tuesday, and the weekly report by the US Energy Information Administration is due at 10:30am (14:30 GMT) on Wednesday.
“Negative prices will … raise the topic of mandated production cuts in the US. The Texas Railroad Commission is set to meet today, after their meeting last week. There is the potential that they vote in favour of production cuts for producers in the state today, which if it is the case, would provide some relief to the market,” ING commodities strategy head Warren Patterson and senior commodities strategist Wenyu Yao wrote in a note on Tuesday.