It’s all about oil ETFs now.

Retail money was flooding into oil ETFs today — particularly USO — on the belief that they were buying oil at $1 or -$10 or whatever the lows were.

They didn’t realize they weren’t buying May oil. They were buying June, which is trading at $21.12.

What’s worrisome is that the USO ETF now owns a large portion of the June contract. Coming into the day it was around 30% but there are signs it could be even more today. The ETF filed today to authorized an increase to shares outstanding to 4 billion. That’s after a surge above 1 billion since March and from 120 million at the start of the year.

That chart will be updated again tomorrow and we’ll get a better idea.

In all likelihood, retail traders have continued to pile into USO and other oil ETFs. At some point they’re going to throw in the towel or something is going to go wrong at the ETF itself. At one point today it was trading at more than 10% above net asset value.

The other thing to watch out for is funds blowing up or even problems at the CME. Oil is traded with high levels of margin. Even though most specs would have moved to June, there were still good flows in May and someone is clearly on the wrong side of that. We need to find out who was holding the bag.

If you’re new to oil, there are delivery points for crude all over the world and in the US. They often trade on spreads to WTI but those can vary and disconnect.

These were updated a few minutes ago:

The CME says oil futures can trade in negative territory. We’re not too far away now with the May contract hitting $5.56 now in an absolutely catastrophic rout.

To be sure, there is more volume in the June contract but I’d also point out that this is the real volume because it’s crude for delivery. If you’re holding an oil contract tomorrow at the close, you’re taking delivery of that oil.

This drop right now says that no one wants that oil.

I don’t understand how June can be at $22.40. That’s a testament to suspension of critical thinking.

May WTI crude is now down $7.42 to $10.85 — a drop of 40.6% on the day. It’s the worst day ever for a crude contract. The June contract is also now down $3.28, or 13.1%, to $21.76.

Both of these numbers flatter what’s happening in the North American physical market. There are various delivery points that are cushioned by non-nonsensical retail buying in oil futures. Some of those delivery points are also in spots where it’s difficult to move crude. Here’s a sampling of current prices:

Hedge funds see a chart like this and absolutely lick their chops. It shows shares outstanding in USO, which is the main oil ETF.

Retail traders have absolutely piled into longs in crude oil, betting on a steeper curve while misunderstanding negative roll yield.

That alone is usually enough for a trade, because of retail’s abysmal track record. What makes it particularly alluring is that the ETF now owns 146,542 contracts for the June expiration. That’s 27.2% of the open interest in the contract, compared to less than 5% normally and they have another few % in pending trades.

Ultimately, these positions need to be sold, not just on the retail side but they will need to be rolled to July. Moreover, the ETF late on Thursday realized that it had a problem and changed its mandate to put 20% of open interest in the second-month contract (which is currently July). They appear to be doing that now and that’s going to place additional pressure on the June contract.