Usually only producers who are eligible to take delivery are expected to be present in a contract after the roll period is over since most prop firms and speculative institutions have tight risk controls regarding expiring contracts. Whichever physical players were left probably scrounged for storage but couldn't find any (at a reasonable price and at Cushing). The rest were probably just retail since the fall into negative was actually with very thin volumes.
Surprisingly, retail traders were allowed to trade a physically delivered contract so close to expiry by brokers like Interactive Broker IB (they lost around $88mn in this move). There are reports that Interactive Broker's terminal/charts and contract descriptions were showing a lower bound of 0 for WTI and that orders also weren't going in once Crude turned negative.
In India, brokers supposedly had an exposure worth Rs 330 crores which is considerable given that our market isn't that big. MCX crude however is cash settled (not physically settled) and was settled at Rs. -2884 per contract.
What led to this
Storage utilization is at very high levels. The only place where there is some storage left is PADD II. This is also the place where all the import/export for WTI crude takes place. Cushing, Oklahoma is the place where you get delivery if you holding a contract at expiry. You can either chose to store in there (if you can find storage) or you can transport it and store it elsewhere (so need to consider transportation costs).
Around 200mn barrels of storage is left as of now. We are filling at approximately 10mn barrels a week. Without the SPR, we have about 125mn barrels which should last a couple of months at this rate.
However, max capacity doesn't mean till where we can fill it all - need to keep 10% open for daily operational inflow and outflow.
Historical context
Usually, when inventory levels are low, prices are higher, and as soon as inventories start building, prices come down. In 2017, we saw OPEC supply cuts which only recently expired on 31st March, 2020. So this Coronavirus impact hit the oil market just as it was bringing inventory levels down to comfortable levels.
Why did inventory rise so much
Since the Coronavirus hit oil demand, refiners in order to quickly backoff their gasoiline production, took their utility rate to <70%. As a result, barrels were now being turned away by refiners and they thus started showing up in inventory. Refiners are key as the problem this time is demand.
For anyone expecting a quick V shaped recovery in oil, they should note that it takes the system a long time to waive off the inventories. You can stop growth of inventory, but waiving of the excess is a different game. Takes time.
June-July Spread
The M20-N20 spread had gone to -11$. It is not that it costs 11$ to put in storage but that people couldn't get their hands on it. We are in uncertain times, maybe a lot of storage is actually spoken for. Nevertheless, for -11$ a lot of space will become available - smaller players come in, pipeline space, little tanks at small distribution companies etc etc. This is why we saw a quick retracement in price as well. The market adjusts and the speculators come in.
Possible Intervention
One possible way for the government to intervene (on a worst case level) is to pay producers to keep oil in the ground by expanding the SPR. So essentially, the government can buy the oil from producers but ask to keep it with them. Technically it infinitely increases storage in the form of storage in the ground. And since storage is the main issue right now, the futures price should theoretically react to it as well.
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