In April 2025, WTI crude recorded $55.12 — its lowest level since February 2021. Understanding what this price level signifies requires not a simple price comparison, but a comparison with the market environment of that earlier period. February 2021 was the early stage of recovery from the COVID-19 pandemic, when demand recovery expectations were pushing prices higher. Breaking below that level for the first time in over four years indicates that market participants harbored extremely serious concerns about the global economic outlook.
The immediate trigger for this sharp decline was the escalation of the US-China trade war. The tit-for-tat tariff exchange heightened fears of global supply chain disruption and economic growth slowdown, triggering a flood of selling in anticipation of reduced energy demand.
The $55.12 low was caused not by deteriorating supply-demand fundamentals, but by a broader financial market shift to "risk-off" mode. Actual oil demand had not sharply declined at that point — "fear" of future demand reduction moved prices. This distinction matters: "fear-driven selling" exhibits a different recovery pattern than selling driven by actual demand deterioration.
The most important structural change of April was open interest falling by over 300,000 contracts. Open interest measures total position volume, and this large decline means that massive amounts of capital were withdrawn from the market.
The internal structure of this liquidity contraction was complex. Managed money (hedge funds, CTAs, etc.) long positions actually turned to increase, with exploratory buying entering at low price levels. In contrast, Traders (large position holders required to report to the CFTC) increased short positions, temporarily exhibiting bearish sentiment. This directionless divergence — "managed money net longs increasing / Traders adding to shorts" — is the structural reality behind the disappearance of 300K+ contracts of open interest.
A large open interest decline tends to suggest "market atrophy." In a market with reduced liquidity, even small-volume trades move prices significantly. Part of April's sharp decline may have been an amplification effect from this liquidity reduction. The recovery of open interest (capital re-entering the market) can serve as a leading indicator of stable price recovery.
Caught in the liquidation wave, the forward curve temporarily formed contango. However, this structure was not uniform. The front end within 6 months still retained backwardation, while the back end exhibited contango — displaying different shapes at the front and back of the curve.
The persistence of near-term backwardation indicates that physical spot supply-demand is still tight. In contrast, the back-end contango anticipates future supply surplus. The market's recognition that "the present is tight, the future is surplus" is condensed in this complex curve shape. The fact that the physical supply-demand reality (tight inventory) did not change even as prices sharply declined supported the subsequent gradual recovery.
After recording the $55.12 low, WTI crude began a gradual unwind. The market entered a phase of "assessing" the impact of trade friction. Because the cause of the sharp decline was financial liquidation rather than actual demand deterioration, the physical supply-demand reality (tight inventory, near-term backwardation) supported the price floor.