The Gulf is a major gateway for oil to reach global markets, and spikes in US-Iran tensions typically drive prices higher.
With demand down 30% worldwide due to the coronavirus pandemic, and the main USA storage hub in Cushing, Oklahoma, expected to fill up in a matter of weeks, very few want to be stuck with oil barrels that they have to take delivery on at some point during May.
Prices set a low of negative $40.32. Its deflationary effect threatens to further cripple economies around the world already reeling from coronavirus-fueled lockdowns.
A barrel of crude oil in NY dropped from $18.27 (€16.80) on Friday evening to negative $37.63 (€34) on Monday.
Oil prices rebounded on Tuesday, with U.S. crude turning positive after trading below $0 for the first time ever, but gains were capped amid unresolved concerns about how the market can cope with fuel demand decimated by the coronavirus pandemic.
Traders are now more focused on the contract for June delivery, which had trading volumes more than 30 times higher.
The price crash spilled into the ETF market, with the biggest crude-tracking fund, the United States Oil Fund LP, moving some of its WTI contracts into later months, according to a regulatory filing.
The war ended in a tentative truce last week, as OPEC, Russia and other oil producers agreed on cutting production by 10 million barrels a day, starting in May.
When a futures contract expires, traders must decide whether to take delivery or roll their positions into an upcoming contract.
Riyadh and Moscow drew a line under their dispute earlier this month, when they and other countries agreed to cut output by nearly 10 million barrels a day to boost virus-hit markets.
US West Texas Intermediate (WTI) crude for May delivery was up $38.73 at $1.10 a barrel by 0117 GMT after settling down at a discount of $37.63 a barrel in the previous session.
Faced with the situation, the Organization of the Petroleum Exporting Countries (OPEC) and its allies including Russian Federation, a grouping known as OPEC+, have agreed to cut output by 9.7 million barrels per day (bpd).
But Kuwait's state news agency KUNA said on Thursday the OPEC producer would begin cutting supplies to worldwide markets without waiting for the official start of the deal.
USA oil barrels for June delivery also dropped, but not as dramatically, falling 18% on Monday to finish at $20.43 (€18.81).