What triggered the massive sell-off in oil prices?

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The United States Oil Fund's sale of short-term contracts triggered a significant sell-off in oil prices.

A major sell-off in oil prices was triggered by the United States Oil Fund (US ETF), a significant exchange-traded fund, beginning to divest its short-term contracts of the commodity. This action led to a notable decline in oil prices, with West Texas Intermediate (WTI) for June delivery experiencing a substantial drop. The move by the US ETF was influenced by growing concerns regarding the availability of storage space for crude oil in the immediate future.
ETF's Shift to Longer-Dated Holdings

The United States Oil Fund initiated the sale of its oil contracts set to expire in June. This strategic decision was aimed at transitioning into longer-dated holdings, a move prompted by anxieties over dwindling storage capacity for crude oil. This shift in holdings by a major ETF created ripples throughout the market, influencing trading decisions of other market participants.
Advisory from Standard & Poor's and Other Indices

Following the US ETF's disposition of its June contracts, Standard & Poor's issued guidance to its clients. The advisory recommended that clients sell their stakes in the June contracts and reallocate them to July contracts. As S&P operates the GSCI commodity index, which is closely followed by substantial investors like pension funds, this advice carried significant weight. Other prominent indices, including the Bloomberg Commodity Index, also adopted similar strategies, further amplifying the market's reaction.
Broader Context of Historic Price Declines

The sell-off occurred against a backdrop of unprecedented lows in oil prices earlier in the month. The WTI benchmark had previously plunged below zero for the first time in history. This historic decline was attributed to the global economic shutdowns implemented in response to the COVID-19 pandemic, which drastically reduced demand for oil. Despite an agreement by major oil-producing nations to cut output by 10 million barrels per day from May 1, the market remained subdued, with concerns about existing inventories continuing to weigh on prices.

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What triggered the massive sell-off in oil prices?

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