The March-April WTI crude market had been trading firmly, supported by OPEC+ voluntary cut commitments and receding Middle East ceasefire hopes. In May, this dynamic shifted. Two primary factors drove the change.
First, easing Middle East and Ukraine tensions. The geopolitical risk premium contracted, reducing the rationale for maintaining the long positions speculators had accumulated. Second, intensifying higher-for-longer rate concerns suppressing fuel demand. The persistence of inflation entrenched a 'higher-for-longer' rate recognition, causing demand-side downward pressure to materialize. The convergence of these two factors converted the prior firmness into soft price action.
March-April firmness was supported by 'supply risk.' May saw the emergence of a new theme — 'demand concern' — which balanced supply and demand and eased the market's tension. However, because both remain balanced, no strong directional movement has emerged either.
The concept this paper most importantly records is the '$79 short-squeeze completion.' In the March 26th report, the author noted that the $79 average level had transformed from a 'resistance line for profit-taking and fresh shorts' into a 'support level for fresh longs and buy-backs,' with fresh buying confirmed above that level. This 'qualitative change at $79' was what supported the market's firmness.
By May, however, this short-squeeze above $79 had run its course. Participants who had entered new long positions completed their position-building and entered a 'waiting for the next catalyst' mode. When the 'engine of the rally' — the short-squeeze — stops, the market loses directional conviction.
The concept of 'short-squeeze completion' provides an important perspective for understanding the essence of the market. In a market with heavily accumulated short positions, prices rise and short holders are forced to cut losses, and their buy-backs trigger further price gains. But at its core, this is nothing more than position-driven price appreciation. When the phase pushing the market higher (the short-squeeze) ends, the market behaves as if nothing happened and enters a wait-and-see mode, searching for the next trigger for price movement.
The notable observation from May's CFTC data is the difference in direction between Reportable Trader net positioning and the Number of Traders (the count of large position-holding entities subject to CFTC reporting requirements). Reportable Traders' net open interest shows long additions, while the Number of Traders — a gauge of market sentiment in its own right — shows a bearish direction (increase on the sell side).
The important point is this: net positioning (the difference between longs and shorts) reflects aggregate volume, but cannot distinguish whether one giant entity holds a large position or whether hundreds of entities each hold small positions. The Number of Traders, by contrast, makes this 'breadth of participation' visible as an independent metric.
The temperature gap of 'bullish positioning, bearish Number of Traders' does not simply indicate that the market has failed to reach consensus on supply-demand direction. Observing key players' behavior, the qualitative nature of net position changes (whether long increases stem from short covering or fresh buying), spreads, and the Number of Traders together tends to allow earlier detection of divergence between surface-level market movement and actual underlying intent.
A notable change is also progressing in the forward curve. Backwardation that had been expanding since February peaked out in mid-April, and after a month of adjustment and correction, is now settling into a flat structure.
When backwardation is deep, it tends to offer the benefit of roll yield, which also functions as an important motive from an investment standpoint — but as that has now unwound, the motive behind market participants' positioning has faded as well.
Broadly speaking, expanding backwardation is textbook-explained as reflecting 'physical tightness and supply risk concerns,' but the backwardation seen recently has been position-driven. The shift toward flatness tends to make visible the disappearance of a catalyst (an event or development that would meaningfully move the market) and to suggest the market has entered a period of adjustment.
May 2024's WTI crude market continues without directional conviction or clear motivation as bullish and bearish forces remain balanced. The view of firm trading within the $75–80 range for the near term is maintained. The $79 short-squeeze completion, the backwardation peak-out, and the temperature gap between positioning and sentiment — these three signals point to the conclusion: 'this is not a phase for testing turning points.'