Last week saw a virtual bloodbath in oil, with United States crude prices crashing to an unprecedented minus $40.32 per barrel before ending at $16.94.
Meanwhile, the other pricing benchmark, Brent crude oil, traded in a range from $16.00 to $28.24 per barrel last week and was trading at around the $21.85 level, just below the midpoint of the week's trading band.
Total Saudi supplies for March reached 7.21 million tonnes, as Russian Federation shipped 7.02 million tonnes during the same period. The markets have fallen for eight of the past nine weeks.
Last week, United States oil fell below zero for the first time as investors scrambled to offload it before the expiry of a trading contract, but could not readily find buyers.
Producers may not be slashing output quickly or deeply enough to buoy prices, especially when global economic output is expected to contract by 2% this year, worse than the financial crisis. Global production cuts have not kept pace with the collapse in demand.
Before a futures contract expires, USO rolls over its holdings into the following month's contract if it cannot take physical delivery of the oil.
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Bjornar Tonhaugen, head of oil markets for Norway's Rystad Energy, said the market knows the storage problem means the industry is "on a calculated path to reach tank tops in weeks".
That's the going rate for a barrel of oil to be delivered in June, which is now the most commonly traded contract on the futures market that serves as a proxy for the value of actual oil.
Citi's Michael Hsueh said that prices won't rebound until there's a meaningful recovery in demand. For example, July 2020 contract is trading below $19.00, September 2020 contract is trading below $24.00, while December 2020 contract is trading below $27.00.
However, OPEC and its allies including Russian Federation, a group known as OPEC+, promised two weeks earlier to reduce oil production by 9.7 million barrels of oil per day in May and June. Nearly 10% will be invested in the June 2021 contract. The potential profit for a market participant holding a long put option is not limited to a zero price.