The latest Commitments of Traders data from the CFTC confirms that short covering has been largely responsible for the rally in crude oil during the last eight weeks:
With the net-long position reaching a 17-month high and the gross short position in Brent crude oil reaching the lowest level since last May (an intermediate term peak for price) the crude oil market appears especially vulnerable to a deeper correction.
For WTI the low $38s are an important area of potential support with a break below this area likely leading to a swift decline to the ~$36 level:
WTI Crude Oil (Daily)
Crude oil continues to exhibit classic bear market characteristics with relatively weak accumulation during the recent rally and the advance even came to a halt almost exactly at the falling 200-day simple moving average. Below ~$38 we could see a swift descent into the mid-$30s which is frankly about the level that feels right given the current fundamental/macro backdrop.