Oil is on track for its best month ever after rebound, but traders say it’s

In the last two months, oil has hit two very different first-of-its kind milestones. In April West Texas Intermediate, the U.S. oil benchmark, plunged below zero and into negative territory for the first time on record. Meanwhile May is shaping up to be WTI’s best month ever, going back to the contract’s inception in 1983—an astonishing turnaround month-on-month.

Improvements on both the demand and supply side of the equation have pushed prices higher. Data shows that people in the U.S. and China are starting to hit the road again, while producers around the globe have cut output at record rates in an effort to prop up prices.

The contract has jumped more than 70% in May and posted four straight weeks of gains, but some traders warn that the near-term outlook for oil remains uncertain, and that prices could head back into the $20s after settling around $33 on Friday.

Additionally, part of WTI’s blistering rally this month is due to the historic low from which it bounced. Prices are still about 50% below January’s high of $65.65, significantly cutting into profits for energy companies, which are often saddled with debt. A number of U.S. energy companies have already filed for bankruptcy protection, including Whiting Petroleum, which was once a large player in the Bakken region. If prices stay at depressed levels, there could be more casualties.

Still, the market has shown signs of rebalancing itself, and analysts say that if demand continues to improve and producers keep wells shut-in, the worst could be over for oil.

“The oil market rebalancing continues to gather speed, driven by both supply and demand improvements … These improvements are taking out the risk of a sharp pull-back in prices although we re-iterate our view that the rebalancing will take time,” Goldman Sachs said in a recent note to clients.

“We believe that the next stage of the oil market rebalancing will be one of range-bound spot prices with the most notable shifts being a decline in implied volatility as well as a continued flattening of the forward curve without long-dated prices rising yet,” the firm added.

While demand for petroleum products fell off a cliff in April, the outlook is improving as  economies around the world begin to reopen. Raymond James, which has been tracking shelter-in-place orders, said that of the 3.9 billion people worldwide who have been under lockdown at some point since January, 3.7 billion, or 95%, have experienced some sort of reopening.

Chinese demand for oil in April rebounded to 89% of what it was a year earlier, according to IHS Markit, and the firm expects May demand to be 92% of 2019′s level. During February’s low, demand in China, the world’s largest oil importer, fell to just 40% compared to a year earlier.

In the U.S., all 50 states have begun the reopening process to varying degrees, which means people are once again driving. Data from the Energy Information Administration has shown an uptick in gasoline demand, although there’s still a way to go before the pre-coronavirus levels are reached.