Demand in an economic slowdown
There are several reasons which have a strong impact on the price of crude oil. One of them is fear of lower demand in the economic slowdown. The global economy is on the brink of recession. High inflation and the high price of gasoline create pressure to solve this problem. Last week OPEC+ raised the production of crude oil. It was the lowest production raise since 1986, but still, the message was sent. The price of crude oil decreased since Wednesday, when OPEC+ had a meeting, almost by 10%.
30 minutes chart of CL (Crude Oil Futures), Decrease of the price of a commodity from OPEC meeting. Source: tradingview.com
Open interest is rising
CME Group defines open interest as follows:
“Open interest is the total number of futures contracts held by market participants at the end of the trading day. It is used as an indicator to determine market sentiment and the strength behind price trends.”
In other words, open interest is a number of positions that have been opened, but not closed. To add, CME defines:
“Open interest increases once again when investors and traders open more new long positions or sellers take on new short positions in an amount greater than the number of contracts that were closed that day.”
Client sentiment of one of the biggest brokers IG shows that open interest in crude oil is raising. The picture shows that the weekly change in open interest for crude oil is +29%. Increasing open interest could be freely translated as new money is coming into the market. On the other hand, the price of black gold decreases. This could show a potentially bearish signal, as it is believed that this pattern shows aggressive new short selling.
The weekly change of open interest in Crude Oil, Source: dailyfx.com
A high level of volatility shows that markets are turbulent and the price is changing rapidly. The economic slowdown and high inflation spark fear of lower demand for goods. The political tension and pressure to lower crude oil prices are visible. On the other hand, further development in the war between Ukraine and Russia or escalating tension in Asia could elevate the price of a commodity to 100$ price tag.