The spot WTI crude oil price closed down another 1.69% on Thursday, at a six-year low of $36.58 per barrel. The crude price has been on a wild ride since yesterday, when it jumped 3.01% to an intraday high of $38.99 a barrel, after the U.S. Energy Information Administration (EIA) reported that U.S. commercial crude oil inventories rose to 485.9 million barrels, down 3.6 million barrels in the week ending December 4, compared to the analysts’ expectations of an inventory build of 300K barrels. Traders, however, began selling and pushed the crude price down 4.57%, from the intraday high to $37.21 a barrel at the close, after realizing that the distillate inventories increased last week by 5 million barrels, double the forecast polled by Reuters.

The EIA said the demand for distillate fuels fell to 3.268 barrels per day (bpd) last week, the lowest level seasonally since 1998, as the demand for heating oil in the northeastern U.S. diminished due to the warmer winter temperatures that the El Niño weather pattern has brought.

The EIA said stockpiles at Cushing, Oklahoma, the delivery point for WTI futures and the biggest U.S. oil-storage hub for WTI futures, rose by 423K barrels to 59.449 million barrels, approaching the April 17 peak level of 62.2 million barrels. Total storage capacity for the site was 71.4 million barrels as of March 31, according to the EIA.

Excluding the Strategic Petroleum Reserve (SPR) of about 695.1 million barrels, U.S. crude oil inventories remain near the peak level of 490.9 million barrels set in the week ending April 24, 2015. On Tuesday, the American Petroleum Institute (API), an industry group that represents about 400 oil and natural gas corporations, said its crude oil inventory data for the week ending December 4 showed a draw of 1.9 million barrels, while stocks of crude at Cushing were up 614K barrels.

The crude oil price has tumbled almost 11% since last Friday, after the Organization of the Petroleum Exporting Countries (OPEC) announced that it had agreed to roll over its policy of maintaining crude production in order to retain market share. According to Reuters, OPEC supply rose in November to 31.77 million bpd from 31.64 million bpd in October, driven mainly by Iraq’s output, which rose by 247,500 bpd last month to 4.307 million barrels.

The EIA data showed that U.S. crude oil field production is down a mere 4.19% from a record high this summer, as the U.S. still produced 9.202 million bpd for the week ended November 27, 2015, compared to a 30-year record high of 9.604 million bpd reported in the week ended July 3, 2015. This is despite that the U.S. oil rig count fell to 545 for the week ended December 2, a 66.13% drop from the peak number of 1,609 in October 2014, according to Houston-based oilfield services company Baker Hughes Inc.

Societe Generale SA analysts told Bloomberg at the end of November that the crude oil market is in contango and it isn’t going away anytime soon due to the shortage of storage capacities and a rise in storage costs. Contango refers to a situation where the front-month or near-term futures contracts are trading less than or at a discount to longer-dated futures contracts, as traders are willing to pay more for a commodity at some point in the future than the actual expected price of the commodity. The higher the spread move, the wider the contango. In tightly-supplied markets, when crude oil prices are strong, that spread value is the complete opposite.

As of December 1, there are 251,057 long positions of light sweet crude oil futures, traded on the New York Mercantile Exchange (NYSE) by managed money or hedge funds, an increase of 996 long positions from the previous week, according to the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) each Friday. This is compared to about 171,805 short positions, an increase of 6,852 short positions from the previous week where light sweet crude oil contracts are traded in units of 1,000 barrels. Hedge funds continued to increase their net short positions by about 5,856 contracts, as they are betting that the crude oil price could go lower. 

From our technical viewpoint, the crude oil price just broke the $37.75 per barrel support level, or the August low, and has been continuing its downtrend in a bearish lower low chart pattern, meaning every low (L) is lower than the previous low. In order to establish an uptrend, the crude oil price needs to break out and stay above the October high of $50.92 per barrel level. There are walls of resistances between the current price and that October high, though.

The volatility associated with the oil futures contract rollover, from the January’16 to the February’16 contracts, could pick up soon, as the contract for January’16 will expire on December 21. The next technical supports are at $34.50, or the May’10 trendline support, and at $33.55 per barrel, or the February’09 low, if the crude oil sell off continues.