The aftermath of oil's march into the unknown

U.S. crude oil prices have soared by almost $35 per barrel since the troughs of Monday afternoon, moving all the way back to around negative $5 this morning.

Why it matters: Those numbers for West Texas Intermediate future prices aren't typos, and they reflect the wider tumult in the oil industry encapsulated in yesterday's first-ever negative futures prices.

• The coronavirus pandemic is causing an unprecedented demand crash, so storage infrastructure is filling fast.

The big picture: The historic price collapse reflects two things at the same time.

1. More narrowly, it was about the calendar as the expiration of the May futures contract looms today. Speculative traders and companies were rushing to unload contracts for May delivery, but with the oil unwanted, they had to start paying to get rid of them.

• "[W]ith adequate storage in Cushing [Oklahoma] unavailable to those who need it, selling intensified in the May futures contract," Wood Mackenzie analyst Ann-Louise Hittle said in a note.
• "This issue is most intense for May WTI because oil demand is at its weakest."

2. Stepping back, yesterday's march into the unknown shows just how much the world's energy landscape has been turned upside down as the pandemic shuts down huge amounts of travel and business activity.

• The over-saturation might be eased somewhat when cuts by OPEC+ nations begin next month and production falls elsewhere too, but it won't be enough to compensate for demand loss for a while.
• Consider that prices for the global benchmark Brent crude are in free fall this morning too, as are prices for June delivery of WTI.

The bottom line: "Some may dismiss Monday’s fall into negative WTI prices as a quirk of the futures market on the last day before a contract ended," IHS Markit analyst Jim Burkhard said in a note.

• "But the fact that prices went this low at all reflects brutal market forces that will not disappear with the expiration of a single monthly contract," Burkhard adds.
• Bloomberg sums it up nicely, noting the negative prices reveal a "fundamental truth" about oil during the pandemic.
• "The world’s most important commodity is quickly losing all value as chronic oversupply overwhelms the world’s crude tanks, pipelines and supertankers," they report.