Oil futures on Friday headed higher for a third straight session, but with U.S. prices on track for a more than 30% weekly loss as commodity investors attempted to take stock of a historic collapse in prices that cast a spotlight on problems of oversupply and dwindling storage in the energy complex.
After the now-expired May Nymex contract on Monday fell into negative territory for the first time ever, meaning that sellers had to pay buyers to take crude off their hands, market participants have been struggling to manage the unprecedented volatility.
“Any meaningful recovery in oil prices is unlikely to last after the utter chaos witnessed earlier this week,” said Lukman Otunuga, senior research analyst at FXTM. “Oil weakness is set to remain a major theme in Q2 given the overwhelming drop in demand, fears around slowing global growth and lack of storage space.”
“At this point, anything and everything is on the cards for both WTI & Brent, and this sentiment will most likely be reflected in price action moving forward,” he told MarketWatch.
June West Texas Intermediate crude CLM20, +2.78%, the U.S. benchmark grade, gained 23 cents, or 1.4%, at $17.73 a barrel, but the contract traded as low as $15.64 in the overnight session. On Thursday, WTI surged nearly 20%, adding to similar gains the session prior.
Gains on Friday would mark a third straight advance for the international and U.S. grade oils and would represent the longest such streak since a similar stretch ended March 25.
Despite those outsize gains, WTI is still set for a roughly 33% decline for the week, based on the June contract. A weekly loss for front-month crude of more than 29.46% would be the biggest weekly percentage loss since the period ended January 18, 1991, according to Dow Jones Market Data.
June Brent crude BRNM20, +2.01%, the international benchmark, rose 30 cents, or 1.4%, at $21.63 a barrel on ICE Futures Europe, after gaining 4.7% on Thursday. For the week, June Brent is set to decline nearly 23% for the week.
Some producers in the U.S. are cutting production while other participants have said they would aim to cut output ahead of a May 1 deadline to enact global reductions under a historic pact forged by the Organization of the Petroleum Exporting Countries and allies including Russia, a group collectively known as OPEC+.
Read:Russia is the world’s biggest loser from oil’s crash, and that is the reason to worry
Kuwait on Thursday, for example, said it would consider trimming its production early, according to Reuters, citing the country’s new agency KUNA.
Meanwhile, Continental Resources Inc. CLR, -5.66%, a shale-oil producer founded by oil tycoon Harold Hamm, said it stopped all drilling and shut in most of its wells in Bakken Shale fields in North Dakota, Reuters reported, citing people familiar with the company’s plans.
Baker Hughes BKR, -1.10% on Friday reported that the number of active U.S. rigs drilling for oil dropped by 60 to 378 this week. That marked a sixth straight weekly decline and implied further declines in domestic oil output.
It is unclear what effect declines in output will have in balancing the massive oversupply of crude and the lack of storage facilities which has pressured the energy industry.
“As we see it, a wave of shut-ins is inevitable for the oil market to come closer to a balance,” wrote Bjornar Tonhaugen, head of oil markets at Rystad Energy in a daily research note.
“Not having enough storage is not only a theoretical problem but a practical one too. Unless more production shuts down, the extracted oil will literally have nowhere else to be stored. Which implies a forced shutdown across several locations,” the analysts wrote.
Read:The oil market is running out of storage space and production cuts loom
Moves on the day come after the World Bank cut its outlook for crude prices to an average at $35 barrels a year for 2020, down from its 2019 average, pointing to overproduction.
“The downward revision reflects an historically large drop in demand,” the World Bank said in a news release.
Also on Nymex Friday, May gasoline RBK20, -0.38% traded at 63.45 cents a gallon, trading down 1.4% for the session and poised for a weekly loss of nearly 11%. May heating oil HOK20, -8.59% lost 9.8% to 66.24 cents a gallon, trading over 30% lower on the week.
May natural gas NGK20, -1.87% fell 2.3% to $1.773 per million British thermal units, on track for a weekly gain of more than 1%.
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