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.

The volume has rolled into the June contract but we’re going to be watching all of May, June and July closely in the coming days. The May contract expires on April 21 while the US is selling some of it June position to put it in July because it’s 25% of the open interest.

What’s notable about May is that those buyers will have to take delivery. At $18.27 in today’s settlement, there isn’t much appetite for that.

However in June it’s $25.08 and July at $29.43.

There are some unusual things going on in the oil market right now. It’s been quieter this week but that’s not going to last.

Here is a look at the June chart, which has fallen four days in a row:

That 20m bpd figure is the effective total cut between OPEC plus and the G20 along with buying from the IEA.

More:

The key detail here is how nicely they will ask and what the benchmark will be for others. Is this the US saying that it’s cut 2 mbpd because companies are going bankrupt? Or is it places like Alberta announcing mandatory curtailments?

The other detail that’s crossing is that this will be a two-month cut. That’s not long enough but it’s understandable because no one knows what the world will look like in two months. But if non-OPEC countries are still pumping flat out in 2 months does OPEC drop the hammer on them?

There are huge risks here and we’re not going to get all the answers today.

Here’s the 3-day chart in oil. The 20mbpd talk was the top tick.

The price of crude oil futures are settling at $25.09.  That’s up $1.46 or 6.18% on the day.

The high price today reached $26.45, while the low extended to $23.74.

Looking at the daily chart, the settle price was below the swing low going back to 2016 at $26.05. That keeps the sellers more in control from that chart’s perspective.