Crude oil futures for delivery in May 15 [CLK5.NYM] surged 4.12% to an intraday high of U.S. $54.13 per barrel on Tuesday, after the U.S. Energy Information Administration (EIA) issued a bullish monthly report, which said that U.S. crude oil production is expected to peak in the second quarter and then decline in the third quarter. The EIA, however, warned that oil production could pick up again towards the end of the year as higher crude prices in the second half of 2015 make drilling more profitable. 

Goldman Sachs also sent out a research note saying that both U.S. oil production and stockpiles of stored inventories could peak in April and shrink from May until August, amid a record drop in U.S. oil drilling rigs. The just released weekly report by Baker Hughes [NYSE:BHI], one of the world's largest oilfield services companies, showed that the U.S. oil drilling rig count fell again for the 18th straight week to 760 in the week ending April 10, down over 52% from the record highs of 1,609 set in October 2014.

The bullish sentiment for crude oil was, however, short-lived as the EIA weekly petroleum status report, released on Wednesday, showed that crude oil inventories had a build of 10.9 million barrels, to a total of 484.2 million barrels, the highest since the EIA began keeping a weekly record. Analysts had expected a build of about 3.25 million barrels. The news sent the crude oil prices tumbling 5.41% to an intraday low of U.S. $50.37 per barrel, but managed to close up 4.52% for the week at U.S. $51.79 per barrel.

The Crude Oil Volatility Index (OVX), also took a 13.64% nose dive to close at 43.04 for the week. The OVX is a crude oil derivative which measures the market’s expectation of 30-day volatility of the United States Oil Fund ETF [NYSE:USO], primarily the near month WTI crude oil futures contracts traded on the NYMEX. In short, a sharp drop in the OVX readings usually are buying signals for speculators as the crude oil price futures could move higher near-term.

High volatility in the crude oil and equity markets is attributed directly to hundred of thousands of non-commercial contracts of crude oil futures, traded by large speculators, traders and hedge funds.

According to the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) each Friday, there are 520,929 long positions of non-commercial contracts of crude oil futures, an increase of about 4,901 long positions week-on-week as of April 7. This is compared to about 268,886 short positions, a decrease of about 20,447 short positions week-on-week where light sweet crude oil contracts are traded in units of 1,000 barrels.

In addition to a potential U.S. oil production peak, hedge funds and speculators apparently reduced their short positions, while increasing their bullish bets on crude oil, as the Iran nuclear framework deal now appears to be shaky. The deal started to sound more and more like it doesn't exist as the U.S. has said that the removal of sanctions on Iran will be gradual, but Iranian officials want the Western sanctions on Iran to be lifted immediately after a final agreement is concluded. 

The current Iranian crude oil production is at 3.2 million barrels per day, about 1 million barrels per day away from peak production. Iran could ramp up its crude production by at least 700,000 barrels per day by the end of 2016, the EIA said in their recent monthly report. The U.S. government’s energy agency also said that crude oil prices could be U.S. $5 to $15 a barrel lower than forecast next year if oil-related sanctions against Iran are lifted. According to Reuters, Iran is storing at least 30 million barrels of oil in its fleet of supertankers, waiting for the Western sanctions to be lifted.

One may want to pay attention to the breakdown of the 8-month long inverse correlation between the crude oil price and the U.S. dollar. The U.S. Dollar index (DXY), a weighted geometric index of the value of the U.S. dollar relative to a basket of six major currencies, edged up 1.97% to close at 99.596 for the week and is now in positive correlation with the crude oil price, meaning they moving in the same direction. 

As explained by Goldman Sachs' Jeffrey Currie, the weak correlation between crude oil prices and the U.S. dollar could be related to the drop in oil imports, as the U.S. is creating more supply. Less oil imports means a narrower current account deficit, which puts less depreciation pressure on the U.S. dollar. It remains to be seen if Goldman’s explanation holds up, as the U.S. dollar is expected to strengthen further in the coming weeks. 

The dollar bulls seem to have full control right now, as the DXY just broke the symmetrical triangle to the upside. Fed members, Lacker and Fisher, repeated their views of the “strong” case for a June rate hike, which helps to fuel the bullish sentiment for the U.S. dollar. 

The dollar also got some support from the weak euro. The EUR/USD is expected to remain under pressure for a while as International Monetary Fund (IMF) chief Christine Lagarde pointed out last week that the prospects for economic growth in the euro region remain gloomy and unemployment is stuck at high levels, while the United States will remain the largest economic power in the world.

From the technical viewpoint, crude oil prices have been trading in an inverted ascending triangle pattern since the end of last year, with the major head resistance of U.S. $54.24 per barrel. In the event of an inverted ascending triangle breakout, crude oil could move to the upside, towards U.S. $62.84 per barrel, or 61.8% Fibonacci retracement level. 

It is possible that crude oil could be trading sideways, between U.S. $48.00 and $54.24 per barrel, as hedge funds and crude oil speculators are betting on a near-term U.S. oil production peak, while the EIA weekly report still shows an oversupply.