US Oil Benchmark Drops Another 13%, Completely Erases Last Week's Recovery

Oil prices continued their decline on Tuesday for a second day in a row, as the outlook for supply-demand balance in the coming months remained bleak.

The United States benchmark West Texas Intermediate futures for June fell about 13.8% at $11.04 at press time. Brent Oil futures for July were down 2.7% at $22.45.

The drop followed Monday's sharp decline, where WTI fell nearly 25% and erased a minor recovery posted by oil benchmarks by the end of last week.

Oil is facing a shortage of storage as the novel coronavirus (COVID-19) pandemic has starkly reduced demand. The Organization of Petroleum Exporting Countries and its allies agreed to production cuts earlier this month after rough negotiations, but analysts dubbed the move insufficient.

The United States Oil Fund USO, an exchange-traded fund with the largest oil exposure, said Monday it would reduce its holdings in oil futures contracts for the rest of the year.

It further strengthened doubts over oil's performance in the coming months, and USO Fund tanked 14.8% on Monday at $2.19.

"The move [by the USO] is a recognition of the bleak prospects for the U.S. oil sector in May and June," Cailin Birch, global economist at The Economist Intelligence Unit, told CNBC.