Technically, WTI crude oil extended its major (long-term) downtrend to a new low of $55.12 early Wednesday morning.
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Fundamentally, while the market's forward curve continues to show a backwardation, the lowest spot-month price in over four years tells us there are ample supplies to meet demand.
Don’t Miss a Day: From crude oil to coffee, sign up free for Barchart’s best-in-class commodity analysis. From a price distribution point of view, both commercial and noncommercial traders could soon get interested in WTI crude oil, the operative word being “could”.
In Tuesday’s email from Barchart – the Barchart Brief (be sure to sign up for this free newsletter) – the question was asked, “What bear market is best?’ There are certainly plenty to choose from at this time, with a quick check of my archive alone pointing out soybeans, US stock indexes[i], and winter wheat, just to name a few. But what about crude oil, the WTI ((CLK25) market in particular? Can it be considered a bear market, and if so, is it best or worst? Regarding the latter, how would we know? It seems a subjective query, but provides an opportunity bring up the topic of market structure.
When I talk about market structure, I mean in the world of commodities each market has two sides – Commercial and noncommercial. The commercial side is made of those interests actually involved in the underlying cash commodity in some way, shape, or form. We can read this group’s view of what the real supply and demand situation of a market is through the cash price (market price, intrinsic value, etc.), basis (differential between cash and futures), and futures spreads. The noncommercial side consists of the wide variety of interests that make up the global investment industry. Tracking this group is as difficult as we choose to make it, with the reality being activity from the investment side sets the trend (price direction over time) of a market. In simplest terms it could be argued a market structure is made up of both fundamental (commercial) and technical (noncommercial) analysis. For this discussion on WTI, let’s start with the technical/noncommercial side.
Early Wednesday (April 9) morning saw the spot-month WTI contract extend the market’s long-term downtrend to a low of $55.12 (per barrel). This was the lowest the spot-month contract had been since February 2021 and its low of $51.64. Keep in mind four years ago the WTI market was in a long-term uptrend after proving there is life below zero ($0) in the commodity complex[ii]. It should be noted WTI is oversold, according to monthly stochastics, but as the old saying goes, “A market can stay overbought or oversold longer than most of us can stay solvent”.
As one would expect, at least some of the pressure has come from noncommercial (fund) selling. The latest CFTC Commitments of Traders report showed funds held a net-long futures position of 167,685 contracts as of Tuesday, April 1, a decrease of 12,873 contracts from the previous week and drawing nearer to the recent smallest net-long futures position of 140,014 contracts from the week of September 9, 2024. On the other hand, the short futures position was reported last week at 159,020 contracts, within sight of its recent high mark of 159,789 contracts from the week of February 24, 2025. Given the spot-month contract closed $11.62 lower from Tuesday (April 1)-to-Tuesday (April 8) it would not be surprising to see another dramatic increase in the net-long futures position due in large part to an increase in short futures.
But what about market fundamentals? We can look at this a couple different ways. The market’s forward curve is and has been for as long as I can remember, in backwardation, a price relationship that has historically told us supply and demand is bullish. But this hasn’t stopped the market from falling with the spot-month contract losing 58% of its value from the March 2022 high of $130.50[iii]. Based on the market’s forward curve, some might argue WTI crude oil could be considered a more bullish bear market. But I don’t necessarily agree.
If we apply the economic Law of Supply and Demand that tells us market price “is the point where quantity demanded equals quantities available creating a market equilibrium”. Given this, if the market price – in this case the spot-month contract price – has dropped to its lowest level in over four years then real market fundamentals ARE NOT bullish. This look at supply and demand tells us crude oil is as bearish of a bear market as soybeans and wheat, along with a number of other commodity markets.
From a price distribution analysis point of view, we see the WTI market hasn’t spent much time down at these prices over the past 10 years. If we expand our analysis out to the previous 15 years, based on weekly closes only, we see the spot-month contract has posted a Friday settlement at or below Wednesday’s low of $55.12 only 27% of the time. Given this, it’s possible either side (commercial, noncommercial), or possibly both, could view this as a buying opportunity. But I won’t be the first to do so given there is no technical or fundamental indication a low has been established.
[i] It should be noted since I posted my piece on the S&P 500 on April 1 (and no, I wasn’t fooling), all three major US indexes have extended their loss beyond the industry standard definition of bearish territory of a 20% loss.
[ii] At expiration during April 2020 the spot-month contract plunged to a low of (-$40.32).
[iii] Keeping in mind this spike was tied to Russia’s invasion of Ukraine in late February 2022.
