The FRB's large September rate cut eased risk-aversion across financial markets broadly, including equities and foreign exchange. Because the size of the cut roughly matched prior market expectations, most asset classes settled alongside the reduced tension. Crude followed this pattern, recovering from the $60s it had touched in late August.
However, viewed against the broader financial-market backdrop, part of crude's market has not kept pace with the rest: the speculative position discussed in this paper. Equity positioning largely completed its adjustment once the cut landed; crude's speculative position, by contrast, has barely moved from its late-August level, as the next section details. Understanding where this isolated imbalance came from requires first revisiting what produced it. Through late August, several financial institutions, Morgan Stanley among them, downgraded their demand outlooks, and concern over China's economic slowdown compounded the pressure, pushing WTI down into the $60s. This demand-side concern is the soil from which the short position examined in the next section grew.
While financial markets broadly regained composure after the rate cut, crude's speculative positioning alone has not caught up with that shift — a pattern easy to miss if one looks only at how far price itself has recovered. Comparing which asset classes moved in step and which did not is a useful lens for this phase.
Unwinding a speculative position requires a sufficient counterparty on the other side of the trade to be present in the market. Ahead of a major event such as an FOMC meeting, many participants tend to defer new positioning decisions, thinning the market's overall depth. Even when the underlying directional view hasn't changed, this reduced depth alone can leave a large position sitting unresolved.
Applying this general mechanism to September 2024's CFTC data: fresh speculative selling accumulated around the $71.5 level from late August onward. What stands out is that even as price has since stabilized and staged a gradual recovery from the $60s, the most recent positioning report (as of September 17th) shows this short barely unwound. The pre-FOMC caution described above explains this failure to unwind.
How long this persists is unclear. Should price break above the $71.5 level where the shorts sit, stop-losses on that position could be triggered. With market depth still thin, a cluster of such stop-losses could produce a temporary spike into the high $70s.
Should price recover further, distinguishing whether that move reflects a genuine improvement in supply-demand conditions or simply position cleanup within thin liquidity is material to judging how durable it would be.
Viewed through the lens of response speed across tenors, the forward curve shows an interesting divergence (a shift from something simple and uniform into something progressively more complex and uneven). In contracts six months to a year out, backwardation narrowed clearly from around August 30th. Near-dated contracts, by contrast, saw only limited narrowing over the same period — the same demand concern produced markedly different response speeds depending on tenor.
Currently, alongside the price recovery, this trend is starting to reverse, with the curve beginning to steepen again. In absolute terms, however, backwardation has not reached an extreme level, and participant sentiment appears tilted toward neither excessive optimism nor pessimism.
The differing response speeds across tenors suggest participants were pricing the demand concern as a temporary adjustment rather than a permanent structural shift. That backwardation has not reached an extreme level is consistent with this reading.
September 2024's WTI market is defined by two clocks running at different speeds: a "fast clock" — price — that has already recovered, and a "slow clock" — the speculative short position — that has remained largely frozen at its late-August level. The $65–75 range can be understood as the temporary state produced by the gap between these two clocks. Which direction this gap resolves toward is likely to depend on how much market depth recovers once the FOMC has passed.