Crude oil futures for delivery in April 15 [CLJ15.NYM] plunged almost 2.66% on Thursday to an intraday low of U.S. $46.89 per barrel and closed at U.S. $47.05 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 4.5 million barrels to a total of 448.9 million barrels, the ninth straight week of seasonal record levels. 

The EIA said on Tuesday that it revised U.S. total oil production in 2015 upwards to 9.35 million barrels per day from last month's previous forecast of 9.3 million barrels per day. Total oil production for 2016 was revised slightly downwards to 9.49 million barrels per day from 9.52 million barrels per day.

The EIA warned last month that the U.S. may run out of crude oil storage space as soon as June. Capacity is about 67% full in Cushing, Oklahoma, the delivery point for West Texas Intermediate futures contracts, compared with 50% at this point last year.

This came on the heels of the weekly report by Baker Hughes [NYSE:BHI], one of the world's largest oilfield services companies, saying that the U.S. oil drilling rig count fell another 62 to 922 in the week ending March 6, down over 42% from the record highs of 1,609 set in October 2014. 

Goldman Sachs analysts said that 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. 

The Crude Oil Volatility Index (OVX), traded on the Chicago Board Options Exchange (CBOE), surged 3.44% to an intraday high of 50.86 and closed at 49.59, above 48.16, the 38.2% Fibonacci retracement level. 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 viewpoint, 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. The crude oil price is breaking down from the bearish descending triangle pattern and hence the price projection for crude oil is the U.S. $43.04 per barrel level. 

The OVX index is now moving in a bullish falling wedge pattern. The risk for the crude oil price to move even lower has increased significantly if the OVX index breaks out of the falling wedge pattern.

As of March 3, there are 497,948 long positions of non-commercial contracts of crude oil futures, traded by large speculators, traders and hedge funds, an increase of about 7,043 long positions week-on-week, according to the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) each Friday. This is compared to about 235,659 short positions, an increase of about 14,591 short positions week-on-week.