Benchmark U.S. crude oil traded at a negative price for the first time ever Monday, a historic moment explained by a technical oddity and uncertainty about the recovery of oil demand amid the coronavirus pandemic.

The West Texas Intermediate crude oil price, the main U.S. benchmark, tumbled to the lowest level since trading started nearly four decades ago, settling at minus $37.63 a barrel.

But the fall was for front-month May contracts, which expire Tuesday, meaning they won’t be actively traded and thus are not the best reflection of the market.

It dropped so much because with WTI, traders “must take physical delivery of a paper contract held at the end of the month,” said Joe McMonigle, a former chief of staff in the Energy Department of the George W. Bush administration.

With no buyers as economies are shut down and concerns about U.S. storage capacity maxing out (meaning there is nowhere to put the unwanted oil), the price fell into negative territory.

Negative pricing is when the cost of selling oil is below the cost of producing and transporting it, setting up the prospect of producers essentially paying traders to take the oil.

“The paper market contracts are expiring, and the physical market is running out of places to put the crude oil oversupply, while demand remains on lockdown and could deteriorate further as recovery remains elusive,” said Frank Verrastro, senior vice president of the energy and national security program at the Center for Strategic and International Studies. “The combination is crushing oil prices.”

But the contracts for June and July are trading higher, in the low $20s, and are the real signal for how the oil market will look in the coming months and whether demand can recover after dropping 30% due to the coronavirus.

“You could see a similar path downward as we get into the month,” said McMonigle, who is now president of the Abraham Group, an international strategic consulting firm. “It will be much more sensitive to plans to reopen the economy that may stimulate more demand, but [we are] still dealing with a lack of storage.”

The differential between the May price and future months reflects a market condition called contango, in which prices for a commodity's futures contract are higher than the commodity is currently valued, and reflects expectations that economic activity may resume soon.

Antoine Halff, a senior research scholar with the Center on Global Energy Policy at Columbia University, said market participants with access to storage are buying oil while it’s cheap with the intention of keeping it until they can sell it in future months at a profit.

“What we are seeing is the severity of the downturn, the reality of the storage and logistical constraints, and the willingness of some to take advantage of the market,” Halff said.

Louise Dickson, an oil markets analyst for research firm Rystad Energy, predicted that “we could see a repeat situation next month” given the lack of storage.

U.S. crude oil stockpiles increased by a record 19.2 million barrels last week, according to the Energy Information Administration. Given that pace, the remaining 21 million barrels of storage available in Cushing, Oklahoma, where physical delivery of WTI oil occurs, “is almost certainly going to get filled up in May,” Dickson said.

Dickson also suggested it’s wrong to minimize the effect of short-lived negative prices for May contracts, which she said will lead more producers to shut in their production and file for bankruptcy.

Another reason prices went negative is that the recent deal touted by President Trump among Saudi Arabia-led OPEC, Russia, and other oil-producing nations to cut oil production by nearly 10 million barrels per day came too late to change the current price situation given that it won’t take effect until May. Wealthy nations in the G-20, such as the United States and Canada, are also expected to see their production fall by some 3.5 million barrels per day due to market forces.

“Timing is everything in today's oil world,” said Amy Myers Jaffe, director of the Energy Security and Climate Change Program at the Council on Foreign Relations. “There is no question the G-20 and OPEC+ deal was very important. The problem is it doesn't take effect until May. So all the oil sold in March and April, especially oil in the Middle East, is going to arrive in May and June. Markets recognize that problem.”

Indeed, a flood of cheap Saudi oil loaded in tankers before the OPEC deal was finalized is en route to the U.S.

Jaffe said she would be watching to see whether Saudi Arabia can find alternative customers for the inbound oil in Asia, where economic recovery is farther along, or if the buyer and seller can agree to stagger or slow its arrival to the U.S.