Retail investors were caught off guard last week when the May WTI contract plunged into negative territory for the first time ever two days before expiry as financial traders scrambled to avoid having to take delivery of oil. The June WTI contract’s price fall may have been triggered by investors moving to later months to avoid a similar fate, said Tony Nunan, a senior risk manager at Mitsubishi Corp in Tokyo. “Anybody who has had length who doesn’t have storage contracts has either closed their positions (in June) or rolled far forward … because it’s suicide to carry a position into the close after seeing what happened last month,” he said.

Cushing, the delivery point for WTI, was 70% full as of mid-April, although traders said all available space was already leased. Producers may not be slashing output quickly or deeply enough to buoy prices, especially when global economic output is expected to contract by 2% this year, worse than the financial crisis, while demand has collapsed 30% due to the pandemic. Amid the rush to cut output, rig counts in the United States are down to the lowest since July 2016, while the total number of oil and gas rigs in Canada has fallen to the lowest since at least 2000, according to Baker Hughes data.

“The Permian Basin and New Mexico accounted for 62% of the shutdowns; an ominous sign considering this region has been one of the more prosperous in the U.S.,” ANZ analysts said. Kuwait and Azerbaijan are coordinating cuts, while Russia is set to reduce its western seaborne exports by half in May.

The Organization of the Petroleum Exporting Countries and its allies including Russia, a group known as OPEC+, pledged earlier this month to cut output by an unprecedented 9.7 million barrels per day in May and June.