As they often say in the commodities markets, the best medicine for low prices is low prices themselves.

Rig counts in the US and Canada are plummeting. The US saw a decline of 60 rigs to 378 last week. That is not far off half the level seen in March. The total of active (oil and gas) rigs also declined by 64 to 465. Canadian rigs dropped to a record low of 26, breaking below the previous record low of 29 in April 1992.

US shut-ins will soon become a bullish factor after the US economy reopens. The US shale industry could be so production depleted that the US might need to import oil.

As expected, the USO ETF bailed out of June WTI and are spreading contract risk along the curve, which is causing a massive price distortion between June and July as it is noteworthy that a $5/bbl +premium has opened up.

I would expect buyers of the June -July spread to reduce those positions tangentially to the degrease of open interest in June, which might be a supportive factor of the near-term contract and a reason I wouldn’t get too bearish down here this time around. Risk protocols suggest we are not in for a repeat of the May 2020 contract settlement disaster.

The startling June sell-off is in part due to the reality of storage facilities filling up rapidly (or leased out). But meagre front contract participation levels are suggesting liquidity is running low. The pros are smelling blood on the street and front running the June delivery risk sell-off. And all of this is getting compounded by market makers showing the USO ETF all the mercy of a Greek tragedy baking in execution risk skewing June lower and July higher on the rolls.

Indeed, the June liquidity issue is getting exacerbated by brokerage firms worldwide wisely protecting their customers by not allowing them to open new trading positions.

The US Energy Information Administration published a comment during London hours yesterday that Cushing storage capacity will remain an issue in June and could result in oil price volatility likely exacerbated yesterday’s sell-off.

Cushing utilisation stands at about 58mb out of 76mb capacity. Available storage does not look worryingly low, but as seen in the at May contract expiry, much of this may be leased or committed already, and therein lies the issues we discussed last week after Reuters Oil expert ran a story on that specific issue.

It is hard to see sentiment turning convincingly positive for oil until there’s evidence of OPEC cuts and demand improvement slowing or reversing the global inventory build.

For the next week or so the pressure on global storage capacity for oil and oil products remains in focus despite optimistic news, key economies could begin opening soon. It will take a while to get the delivery messes settled, but if we can get through Brent delivery unscathed we could quickly pivot to the global economy reopening and shut-ins narratives which could present a more glass half full rather than glass empty view for oil prices

Brent crude is temporarily anchored to $20/bb level this morning after yet another tumultuous Monday yesterday entering a week of expiry, which may prompt some concerns. However, the futures contract does not settle to physical like WTI.

Yet this week (Friday) also sees the start of the OPEC+ cuts, critical for oil market recovery in 2H but not likely to offset the impact of the demand fall in March-June as developed economies are in lock-down.

Central banks influence much of developed market global rates, currencies, credit markets, and some equity markets. Thus, the only reason why the oil price moves were so alarming, and shocking is that because investors have become so accustomed to central bank intervention and reducing volatility, it can be easy to forget what ‘free markets’ can feel like sometimes.

Indeed, oil prices are providing that reality and reminding us that there are things governments and central banks merely cannot control.

Oil markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp