(Bloomberg) -- Oil pared its third weekly drop after a tumultuous start that pushed the active contract into negative territory for the first time.
Futures in New York rose as much as 2.4% on Friday, adding to a 20% rally the previous day as focus shifted to a slowdown in production in response to demand destruction caused by coronavirus lockdowns. With crude trading below $20 a barrel, U.S. output has declined rapidly to the lowest since last July. Operators in the U.S. have also started to shut in old wells and halted new drilling, actions that could reduce output by 20%.
The June contract has lost a third of its value over the week as the pandemic shutters economies and keeps drivers off the road. The World Bank said that global commodities markets will face lasting disruption because of the outbreak, while consultancy Rystad Energy further revised down its estimate for global oil demand to 89.2 million barrels a day.
OPEC and its allies have also reacted to the low-price environment. The coalition agreed earlier this month to slash daily production by about 10 million barrels a day starting in May. Iraq’s Oil Minister Thamir Ghadhban said oil prices will improve once the deal kicks off.
Kuwait said it has already started cutting output, the first major producer in the Persian Gulf, the world’s most prolific oil-producing region, to announce that it’s pumping less oil ahead of schedule. Algeria also told OPEC its cuts would begin immediately.
Oil markets are also having to grapple with a wave of volatility spurred by exchange-traded funds. The U.S. Oil Fund may roll more of its WTI contracts forward due to extraordinary market conditions, while at least two brokerages, including INTL FCStone Financial Inc., are limiting the ability of some clients to enter into new trades in the most active oil benchmarks.
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