Going into the future. Crude Oil.

Fundamentals:
Crude Oil prices have retreated the past few trading sessions following an upward move to near four-year highs last week. Among the reasons cited for the price correction was a sharp increase in U.S. Crude Oil inventories last week.

The Energy Information Administration reported last Wednesday that U.S. Oil inventories increased by 8 million barrels during the week ending September 28.  This was the largest weekly increase so far in 2018 and well above the 2.7 million barrel increase market analysts were expecting.

In addition, seasonal demand for Oil tends to moderate as we head into winter in the northern hemisphere, which could help ease supply concerns that arose from reduced Oil exports out of Iran -- a result U.S. sanctions placed on the sale of Iranian Crude.

Oil bulls may also be lightening up on long positions on concerns that current high Oil prices may entice producers to increase production if possible, in order to take advantage of the recent price rally. Saudi Arabia, in particular, may attempt to increase Oil production to help stabilize any production cuts from Iran. This may moderate further price increases that could choke-off demand and eventually lead to an oversupplied market.

A look at the most recent Commitment of Traders report shows that non-commercial traders are net-long over 566,000 Crude Oil contracts as of October 2. While this was a decrease of over 16,000 contracts for the week, the net-long position is still rather large and any signs of long liquidation selling could keep pressure on prices, especially if key technical support levels fail to hold. 

Technicals:
Looking at the daily chart for November Crude Oil futures, we notice prices are currently trading nearly $3 per barrel below recent highs. This appears to be profit-taking selling potentially tied into the sell-off we have seen in the equity markets. So far the Crude price decline has failed to test either the 20-day moving average or the October 1 low of 72.95. We did see the 14-day RSI reach overbought levels, peaking as high as 0.7630 prior to the recent price sell-off.

Should we start to see some stability in prices during the next few trading sessions, we could interpret the recent price decline as nothing more than the creation of a “bull flag” formation, which if confirmed, could portend a potential test of the recent highs.

Chart support is seen at the September 26 low of 71.47, with chart resistance found at the October 3 high of 76.90.