U.S. oil benchmark is NEGATIVE, on track for lowest close and biggest one-day fall on record

The huge drop in the nearby contract reflects traders scrambling to exit long positions that would require them to take physical delivery of crude amid dwindling storage space. It also reflects a convergence with the physical spot price for oil.

“The collapse...is mostly a reflection of traders rolling contracts to June as no one wants to take delivery because storage capacity is getting close to being reached,” said Edward Moya, senior market analyst at Oanda, in a note.

The June contract, which is the most actively traded, was down $2.82, or 11.2%, at $22.24 a barrel.

The ever-widening discount for May versus the June contract reflects “all the bearish supply and demand drivers that remain permanently in place,” he said.

“While we are probably setting the stage for a significant bottom in oil, it does not matter for the May futures contract that will be delivered into a nightmarish bearish situation,” said Phil Flynn, market analyst at Price Futures Group, in a note. “Not only has demand ground to a standstill, the impact of oil cuts from OPEC+ also will not start in time for the current delivery.”

The trading action comes after the May contract posted a 19.7% weekly loss on Friday.

WTI contracts for later delivery have traded at much higher prices than the front-month May contracts. The steep upward slope for prices in later months in crude, a condition known as contango, underlines the dearth of storage of crude in recent weeks as the coronavirus wreaks havoc on global demand for oil.

The expiration of the May contract and the fundamental demand problems have combined to put outsize pressures on the energy sector.

“Price discovery is complicated, more so than usual, by the soon-to-expire WTI NYMEX front-month contract for May 2020,” wrote Stephen Innes, global chief market strategist at AxiCorp, in a Sunday research note.

“Even more so as the near-term prices are trading massively discounted due to storage premiums getting packed in the far dates, creating very squeezy conditions on the expiring contract as final day settlement (FDS) looms,” he wrote.

Monthly reports from the Organization of the Petroleum Exporting Countries and the International Energy Agency have underscored a period of flagging appetite for crude, even as major oil producers have forged a historic pact to curb output by some 10 million barrels a day, in an effort to end a price war between Saudi Arabia and Russia and stabilize prices that have been swooning.

In addition to OPEC and its allies trimming production, there is also the possibility on April 21 that the Railroad Commission of Texas, which regulates the oil-and-gas industry in the state, could move to limit output in the region.

Reports have also suggested that the Trump administration may provide further incentive by offering to pay producers to keep crude in the ground.

Meanwhile, Brent crude for June delivery, the international benchmark, was down $1.44, or 5.2%, at $26.54 a barrel, after falling 10.8% last week. Brent is more seaborne than WTI, which is often moved via pipelines, is somewhat less constrained by immediate storage worries.

In other energy trading, May gasoline was down 0.2% at 70.92 cents a gallon, while June heating oil was off 2.7% at 95.31 cents a gallon.

May natural-gas futures, meanwhile, jumped 3.7% to $1.817 per million British thermal units.