Negative oil prices, ships dawdling at sea with unwanted cargoes, and traders getting creative about where to stash oil. The next chapter in the oil crisis is now inevitable: great swathes of the petroleum industry are about to start shutting down.

The economic impact of the coronavirus has ripped through the oil industry in dramatic phases. First it destroyed demand as lockdowns shut factories and kept drivers at home. Then storage started filling up and traders resorted to ocean-going tankers to store crude in the hope of better prices ahead.

Now shipping prices are surging to stratospheric levels as the industry runs out of tankers -- a sign of just how distorted the market has become.

The specter of production shut-downs -- and the impact they will have on jobs, companies, their banks, and local economies -- was one of the reasons that spurred world leaders to join forces to cut production in an orderly way. But as the scale of the crisis dwarfed their efforts, failing to stop prices diving below zero last week, shut-downs are now a reality. It’s the worst-case scenario for producers and refiners.

“We are moving into the end-game,” Torbjorn Tornqvist, head of commodity trading giant Gunvor Group Ltd., said in an interview. “Early-to-mid May could be the peak. We are weeks, not months, away from it.”

Read more: The 20 Minutes That Broke the U.S. Oil Market

In theory, the first oil output cuts should have come from the OPEC+ alliance, which earlier this month agreed to reduce production from May 1. Yet after the catastrophic price plunge on Monday, when West Texas Intermediate fell to -$40 a barrel, it’s the U.S. shale patch that is leading.

The best indicator of how the U.S. industry is reacting is the rapid drop in the number of oil rigs in operation, which last week fell to a four-year low. Before the coronavirus crisis hit, oil companies ran about 650 rigs in the U.S. By Friday, more than 40% of them had stopped working, with only 378 left.

“Monday really focused people’s minds that production needs to slow down,” Ben Luckock, co-head of oil trading at commodity merchant Trafigura Group, said. “It’s the smack in the face the market needed to realize this is serious.”

Trafigura, one of the largest exporters of U.S. crude from the U.S. Gulf of Mexico, believes that output in Texas, New Mexico, North Dakota and other states will now fall much faster than expected as companies react to negative prices, which have persisted for several days last week in the physical market.

Until prices collapsed on Monday, the consensus was that output would drop by about 1.5m barrels a day by December. Now market watchers see that loss by late June. “The severity of the price pressure is likely to act as a catalyst for the immediate turndown in activity and shut-ins,” said Roger Diwan, oil analyst at consultant IHS Markit Ltd.

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