The deal that Donald Trump cut only delayed the inevitable. A raging price war in the middle of a pandemic rapidly filled storage capacity for oil production around the world, even before the coronavirus pandemic began impacting demand. With most of the planet on some form of self-imposed economic stall to keep the COVID-19 plague from spreading further, demand won’t recover for weeks, if not months.

With that reality staring investors in the face, they have responded to the lack of capacity and low demand by rationally deciding not to go long on oil futures. This is what that looks like today:

“Get ready for a rocky Monday,” Barron’s warned this morning, and not just in oil markets either:

Dow Jones Industrial Average futures were off 448 points, or 1.8%, matching a similar drop in the S&P 500. Futures for the Nasdaq Composite were down 1%.

Oil prices plunged, with the price of West Texas Intermediate crude for May delivery falling 31%, to $12.45 on weakened demand and concern about a lack of storage space in the U.S. The May contract is set to expire Tuesday.

Brent crude, traded internationally, was off 6.2% at $26.35.

The drop in oil caused shares of Exxon Mobil (XOM) to plunge 6.3% premarket. Chevron (CVX) and Occidental Petroleum (OXY) shares were down 4.5% and 10.9%, respectively.

Halliburton (HAL), an oil-field-services provider, saw its shares fall 6.3% even after beating quarterly estimates on the top and bottom line after warning that activity will continue to plunge in the second quarter.

Future demand is a big issue, but the bigger problem is simply storage space, the Wall Street Journal reports. At some point, everyone will have to stop pumping oil, because there is simply no place to put it. The Russo-Saudi production war has crashed the inventory system:

When futures contracts come close to expiration, their price typically converges with the underlying price of physical barrels of oil. Otherwise traders could profit from the difference between oil futures and oil barrels.

Physical oil prices have been hit hard by the collapse in demand and surge in supply. The price of some regional crudes in the U.S. recently fell below $10 a barrel.

The drop in oil prices comes despite output reductions agreed between countries of the Organization of the Petroleum Exporting Countries and the Group of 20 nations.

“The deal was nowhere near enough to prevent us running out of storage,” said Hani Redha, a portfolio manager for PineBridge Investments. “That’s going to lead to a violent shutdown of production.”

After last week’s deal with OPEC+, analysts worried that the production cuts weren’t anywhere deep enough to head off this crisis. The actual production cut was around 10 million barrels a day, with another 10 million added to it from sanctions on some nations and other competitive pressures that reduced production.  In total, that came up to about 20% of the world’s production, but demand had fallen off by at least a third. Even with this deal in hand, storage would have run out quickly, especially with the strain of the production war between Russia and Saudi Arabia that had already created a massive glut on the market.

This has massive implications for the US energy sector, which is why Trump intervened last week as he did. It’s cheaper for OPEC countries to produce oil than it is in the US for a number of reasons. Labor’s more expensive here, for one thing, but we use more expensive techniques and have more stringent regulation, too. For the US oil and natural gas sectors to remain profitable and producing, we need oil prices well above $20/barrel, probably closer to $50/barrel. We can waive lease and tax levies for an emergency period to attempt to bridge the gap, but there’s no way that’ll work at $10/barrel.

For an economy that’s already reeling under the COVID-19 shutdown, a general layoff in the energy sector could be catastrophic. Either the government would need to add massive amounts to the Strategic Petroleum Reserve using domestic production to keep people employed in a kind of public-works project, or provide enough price supports in other ways to effect the same kind of outcome. This is what Trump was trying to avoid last week, but the Russians and Saudis came to their senses a few weeks too late to avoid it.

The only other option would be to build a hell of a lot more storage. Which state wants to use up its land to store up millions of barrels of oil? And could it be built fast enough to matter?

Update: Just how bad might it get? Bloomberg reported on Saturday that Texas crude bids started at $2 a barrel and might end up going into “negative pricing” (via Steve Eggleston):

Buyers bidding for crude in Texas, the birthplace of the shale revolution, are offering as little as $2 a barrel for some oil streams, a precipitous markdown from a month ago. The slumping value of physical barrels is raising the possibility that Texas producers may soon have to pay customers to take crude off their hands.

Negative prices have already hit more obscure corners of the American oil market amid a bearish trifecta of collapsing demand, swelling supplies and limited storage capacity. The first U.S. grade to bid under zero was a small landlocked crude stream known as Wyoming Asphalt Sour, which went for negative 19 cents a barrel last month.

In Texas, prices are heading in that direction. A subsidiary of Plains All American Pipeline bid just $2 a barrel for South Texas Sour on Friday, while Enterprise Products Partners LP offered $4.12 for Upper Texas Gulf Coast crude this week, according to pricing bulletins.

Offers could fall further if benchmark West Texas Intermediate crude futures — which have lost three-quarters of their value this year — continue to tumble. WTI closed below $20 a barrel this week for the first time since 2002. That bodes ill for producers locked into contracts with suppliers, as the daily price they earn for their crude moves with the broader market.

This could wipe out oil producers in the US, and they may not be able to come back after the crisis eases, either.