The coronavirus pandemic has caused oil demand to drop so rapidly that the world is running out of room to store barrels.
At the same time, Russia and Saudi Arabia flooded the world with excess supply.
The CNN says that double black swan has caused oil prices to collapse to levels that make it impossible for US oil companies to make money.
US crude for May delivery turned negative today, something that has never happened since NYMEX oil futures began trading in 1983.
It was easily the oil market's worst day on record.
US crude for June delivery is still trading above US$20 a barrel -but even that's disastrous.
Artem Abramov, head of shale research at Rystad Energy says US$30 is already quite bad, but once you get to US$20 or even US$10, it's a complete nightmare.
Many oil companies took on too much debt during the good times.
Some of them won't be able to survive this historic downturn.
In a US$20 oil environment, 533 US oil exploration and production companies will file for bankruptcy by the end of 2021, according to Rystad Energy.
At US$10, there would be more than 1,100 bankruptcies, Rystad estimates.
Abramov says at US$10, almost every US E&P company that has debt will have to file Chapter 11 or consider strategic opportunities.
OPEC cuts failed to end the panic
The most stunning part of the record low in oil prices is that it comes after Russia and Saudi Arabia agreed to end their epic price war after President Donald Trump intervened.
OPEC+ agreed to cut oil production by a record amount.
Trump said the OPEC+ agreement would save countless jobs and much-needed stability to the oil patch.
He tweeted that this will save hundreds of thousands of energy jobs in the United States. He says he would like to thank and congratulate President Putin of Russia and King Salman of Saudi Arabia.
Yet crude has kept crashing, in part because those production cuts don't kick in until May. And demand continues to vanish because jets, cars and factories are sidelined by the coronavirus pandemic.
The hope in the oil industry is that today’s negative prices are somewhat of a fluke caused by the rolling over futures contracts.
The record low in the May contract comes on very thin trading volume ahead of tomorrow's expiration. That's because there are concerns that there will be no room to store those barrels delivered in May.
The June contract, however, only dropped around 10% to US$22 a barrel. And Brent crude, the world benchmark, fell just 5% to US$26.50 a barrel. Still, oil contracts roll over each month and they don't crash to record lows.
Ryan Fitzmaurice, an energy strategist at Rabobank says there will be a lot of companies that don't survive this downturn, and this is one of the worst on record.
The next dominoes?
The oil crash has set off a guessing game about which companies will be next to succumb to bankruptcy. The most vulnerable companies are the ones that piled on too much debt, face looming debt maturities and can't generate cash flow to even make their interest payments.
Rystad's Abramov said "no one would be surprised" if Chesapeake Energy (CHK) and Oasis Petroleum (OAS) were forced to consider bankruptcy. Chesapeake recently suspended dividend payments on preferred stock. Its stock price crashed so low that it turned to a one-for-200 reverse stock split to comply with exchange requirements.
Shale driller Oasis has lost more than 90% of its value this year. Its stock is trading below 30 cents.
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