The price of West Texas Intermediate (WTI) crude oil has been volatile in recent weeks, with a sharp rise in prices followed by a decline. On Thursday, March 23, the WTI approached the $72.00 mark per barrel before ending the session with modest losses below $70.00. This negative price action was accompanied by rising open interest, which is supportive of the view that further decline lies ahead for the commodity in the very near term. In this article, we will delve into the factors contributing to the negative price action and what it could mean for the commodity.
Factors Contributing to the Negative Price Action
The negative price action in WTI crude oil prices can be attributed to several factors. Firstly, the ongoing concerns regarding the COVID-19 pandemic continue to weigh on the demand for oil. The rising number of cases in several parts of the world, including Europe and India, has raised concerns about the recovery of the global economy. This has led to a decrease in the demand for oil, which has put pressure on prices.
Secondly, the decision by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, to increase production in the coming months has also contributed to the negative price action. This decision was taken after the group had cut production last year to support prices. However, the increase in production is expected to outstrip the rise in demand, leading to an oversupply of oil and putting further pressure on prices.
Thirdly, the rising tensions between the United States and China have also contributed to the negative price action. The two countries are the world’s largest economies and major consumers of oil. Any disruptions in their trade relations could have a significant impact on the demand for oil and, in turn, on its prices.
Potential Support at $64.00
Despite the negative price action, there is potential support for the WTI crude oil prices at the 2023 low of $64.00. This support is expected to emerge in the near term, given the rising open interest in the commodity. Open interest refers to the number of contracts outstanding in the market and is used as a gauge of investor sentiment. When open interest rises along with falling prices, it indicates that investors are betting on further declines in the commodity.
In conclusion, the WTI crude oil prices are expected to decline further in the near term due to the ongoing concerns regarding the COVID-19 pandemic, the decision by OPEC+ to increase production, and the rising tensions between the United States and China. The potential support for the commodity at the 2023 low of $64.00 is likely to emerge in the near term, given the rising open interest in the market. Investors should remain cautious and keep a close eye on the developments in the global economy and the oil market.