Oil is set to edge lower for the week after recovering from dramatic collapse on Monday that saw prices in New York plunge below zero for the first time in history.

West Texas Intermediate for June delivery was trading near USUS$17 a barrel, putting it on track to end the week just under where it closed last Friday. U.S. operators have started to shut old wells and halt new drilling, actions that could reduce output by 20 per cent. Production cuts may be keeping traders optimistic that prices won’t take another dive as dramatic as what was witnessed this week.

“The production cuts are helping sentiment,” Andrew Lebow, senior partner at Commodity Research Group said. “We have a long way to go to balance the market. Traders are still very concerned about the storage situation.”

Russia’s seaborne exports from the Baltic will fall to a 10-year low in May, while Kuwait and Algeria said they are reducing production earlier than required under the OPEC+ deal.

Still, a massive glut remains and it won’t clear quickly, consultant FGE said, deepening its forecast for demand loss yet again. In a sign of how severe the supply imbalance is, refiners are hunting for vessels to store gasoline and jet fuel, while an American pipeline operator is looking at ways to free up space on its conduits to stock more crude.

“No matter how quickly producers cut their output, it’s still going to take a long time before we start drawing on any inventory,” Lebow said.

With no clear indication of when demand might recover, the market is set for a prolonged slump that will reshape the industry for years to come. Oil’s collapse will be followed by the weakest recovery in history, according to the World Bank.

“There are only two things that can save the market from its current anguish: a recovery in demand or additional supply cuts,” said Stephen Brennock, an analyst at PVM Oil Associates. “Tumultuous, erratic, and unprecedented -- the curtain is about to fall on a historic week for the oil market.”

Prices:

• WTI for June delivery rose 3.6 per cent to USUS$17.11 a barrel at 11:50 a.m. in New York.
• The June contract’s discount to July futures narrowed by almost USUS$2 on Thursday as production has shut.\
• Brent crude climbed 1 per cent to USUS$21.54 a barrel.

Traders are still reeling from the price moves earlier in the week. At least four brokerages -- including INTL FCStone Financial Inc. and Marex Spectron -- are restricting the ability of clients to enter into new trades in the most active oil benchmarks in a bid to curb losses. Tokyo’s stock exchange warned investors that some oil-linked products are seeing large amounts of volatility.

Producers and refiners are also starting to declare force majeure in what could be a wave of broken contracts. American shale explorer Continental Resources Inc. told at least one refiner it won’t make an oil delivery after the price rout, while the trading unit of Petroleos Mexicanos said it couldn’t import gasoline from at least one U.S. company.

“Should global storage reach full capacity over the coming weeks, only the amount of oil that is demanded can be produced,” said Ole Hansen, head of commodities strategy at Saxo Bank. “An event that could force major shut-ins from oil producers around the world.”