What happened

Today will go down in history. The price of a barrel of West Texas Intermediate (WTI) oil plunged into negative territory. One contract sold for a jaw-dropping negative $37.36 a barrel. That's more than $50 below where WTI contracts traded last Friday. 

Usually, price action like that would put enormous pressure on oil stocks. However, most barely budged, all things considered. Shares of oil giants ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX), for example, were only down about 5% by the mid-afternoon. Meanwhile, even financially troubled oil companies such as Helix Energy Solutions (NYSE:HLX)Matador Resources (NYSE:MTDR)Northern Oil & Gas (NYSEMKT:NOG), and SM Energy (NYSE:SM) only sold off by about 10%. 

Oil pumps with a downward sloping chart in the background

Image source: Getty Images.

So what

The May WTI contract, which expires after the futures market closes on Tuesday, cratered today as oil traders scrambled to get out of their position. That's because they must take physical delivery of this oil, which is a problem given that the country is running out of storage space. That's leaving them with no choice but to pay to unload these contracts since it would cost them money to store it anyway. 

However, while May's WTI contract plummeted today, those that expire next month only declined by about $4 a barrel, to around $20. Meanwhile, contracts for the global oil benchmark, Brent, which also expires in June, only fell roughly 8% today, to approximately $25.75 a barrel. Going further out, the decline in the contract price of oil was even more moderate. December WTI contracts only lost about $1 and still trade at more than $30 a barrel.

Because the market tends to be forward-looking, it's starting to discount the near-term storage issues. It sees that oil producers in the U.S. are shutting in wells, while OPEC and other non-members have agreed to reduce their supplies. Those issues should eventually enable the economy to burn off some of the excess oil sitting in storage. That's why large oil companies such as Exxon and Chevron barely declined today.

Still, the hope that oil will be back above $30 a barrel by December isn't ideal for most oil companies, especially smaller producers such as Matador Resources, Northern Oil & Gas, and SM Energy as well as services providers such as Helix Energy Solutions. There are growing concerns that these companies might not survive this oil market downturn.

Matador Resources, for example, is dangerously close to running into a liquidity crunch, according to analysts at Wells Fargo. Meanwhile, SM Energy has already slashed its dividend to preserve its financial flexibility. If industry conditions don't improve, these companies might end up in bankruptcy. 

Now what

WTI went negative today as traders abandoned their positions before the nearest-term contract expires tomorrow. While their sales put some pressure on oil stocks, it didn't cause an implosion since it wasn't representative of the overall pricing market for oil. Still, the persistent weakness in oil prices will undoubtedly affect financially weaker producers, with several likely to go under in the coming months.