October WTI crude oil futures have broken out the bear after the release of today’s EIA inventories report. At press time, October WTI is off more than $1.50 per barrel, smashing two key daily support levels. The rally of August is quickly becoming a distant memory, with the first three full trading sessions of September yielding a nearly $3.00 sell-off in WTI crude.

The EIA Inventories Report

Today marked the unconventional holiday-week crude oil inventories cycle. Here is a quick look at the hard data from the metrics:

• Wednesday’s API stocks report came in at -1.200 million barrels, down from last week’s number of 0.038 million.
• Thursday’s EIA inventories report came in at a -4.302 million barrels, well below industry estimates of -1.294 million.

It appears that predictions of a larger-than-expected draw on supply due to the Labor Day weekend were spot on. If anything, traders may have been expecting an even greater drop in inventories and are pricing today’s EIA report into the market as a bonus.

WTI Crude Oil Technicals

Today has been a significant session for the October WTI futures market. Price has shattered the key 38% Fibonacci ($68.53) and Bollinger MP ($68.13) support levels. The important number to remember from this group is the 38% macro-wave retracement level ($68.53). This is a critical trend indicator — it being taken out confirms October WTI entering correction after August’s rally.

Here are the levels to watch for the remainder of the session:

• Resistance(1): Bollinger MP, $68.13
• Support(1): Daily SMA, $66.42

Bottom Line: The crude oil markets have a mind of their own and it is always tough to nail down a given trading session’s exact close. Nonetheless, at press time it is a trend day down, which is likely to continue into the closing bell.

For the remainder of the session, longs from just above the Daily SMA are good scalping location to the bull. Buys orders at $66.46 will likely produce at least 8-12 ticks on a bump from support. Using a 1:1 risk vs reward scenario, this is a counter-trend scalping play. With a bit of luck, it will set up by today’s close.