Crude oil futures for delivery in April 15 [CLJ15.NYM] plunged almost 6.26% on Thursday to an intraday low of U.S. $47.80 per barrel and closed at U.S. $48.17 per barrel on the New York Mercantile Exchange (NYMEX). The U.S. Energy Information Administration (EIA) said on Wednesday that crude oil inventories increased by 8.4 million barrels to a total of 434.1 million barrels, the seventh straight week of seasonal record levels. Analysts had expected a build of about 3.6 million barrels. 

The crude oil futures managed to bounce back on Friday and closed up 2.8% to U.S. $49.52 per barrel after Baker Hughes [NYSE:BHI], one of the world's largest oilfield services companies, issued its weekly report saying that the U.S. oil drilling rig count fell another 33 to 986 in the week ending February 27, down over 38% from the record highs of 1,609 set in October 2014. 

According to Goldman Sachs analysts, oil firms should get serious by shutting down more oil drilling rigs and only keep the largest producing and most economic wells in production. The massive build-up of crude oil inventory suggests that a reduction in the oil drilling rig count and capital expenditure cuts may not sufficiently materialize in lower growth of crude oil production. 

S&P 500 Energy was the worst performing sector last week, down almost 2% as tumbling crude oil prices prompted investors to dump energy companies. It might be too early to try to catch a falling knife in the energy sector as the crude oil prices have yet to find a bottom.

The Crude Oil Volatility Index (OVX), traded on the Chicago Board Options Exchange (CBOE), surged 3.43% for the week to close at 55.83 on Friday. 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, high OVX readings usually mean traders see significant risks that crude oil price futures will move sharply lower.

From our technical view point, the WTIC crude oil price, which has run up since the beginning of February from the U.S. $44.00 per barrel level, has failed to break out the head resistance at U.S. $54.24 per barrel. 

In the short-term, a bearish descending triangle has emerged. A failure to break out the descending triangle could send the crude oil price sharply lower to retest the U.S. $44.00 per barrel level. The risk for the crude oil price to move lower has increased significantly as the OVX index is now on a bullish upward trend. 

One should pay attention that there are currently more than 480,000 long positions of non-commercial contracts of crude oil futures, traded by large speculators, traders and hedge funds. This is compared to about 200,000 short positions, according to the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) each Friday. 

From our view point, large speculators and hedge funds could head to the exits soon if crude oil prices continue their downward trend.