Crude Oil Price Forecast: Breakdown Extends Bearish Momentum

Downtrend Extends as Key Support Levels Fail

Downward pressure in crude oil continued Thursday, with a new pullback low of $89.85 testing support near a higher swing low from early May to $90.05. That swing low was undercut briefly, suggesting that an extension of the decline is likely. Also, the session is set to end with the lowest daily closing price since a breakdown from consolidation was triggered on Monday, further indicating persistent selling pressure.

Breakdown Below Trend Structure Signals Weakness

A break below the uptrend line and 50-day moving average was triggered together on Monday and confirmed with a daily close below those indicators. Since then, the 50-day moving average has begun to turn down for the first time since rising around the end of January. The initial lower targets include the 100-day moving average at $84.44 and a higher swing low at $81.94.

 Support Confluence Forms Near Short-Term Base

Nevertheless, crude oil has reached a short-term potential support zone that could lead to a bounce attempt that tests prior support as resistance. There is the confluence of support indicators from the $90.05 swing low down to an internal uptrend line (dashed) that is also the bottom boundary of a possible symmetrical triangle consolidation pattern. The midline of a falling trend channel is also present, showing potential support.

Bounce Scenarios into Resistance Zones

Key potential bounce targets include the 50-day moving average at $99.47 and last week’s high of $100.80. However, that strength is anticipated to lead to further weakness, as rallies are expected to be sold into within the broader bearish structure, as price turns back down to continue the bearish correction. It remains to be seen whether a continuation of the correction will occur with lower prices or sideways consolidation. The presence of a falling channel suggests lower prices or through further sideways consolidation.

Correction Phase Extends

A bounce from near current levels would confirm the integrity of the falling channel, with the top boundary line then a potential target. Further consolidation in crude oil is healthy longer-term as it keeps the price from getting too extended. Once the current correction is complete, crude oil looks set to make another run towards new highs, though timing will depend on whether support zones continue to hold in the near term.

If you’d like to know more about how commodity markets work, please visit our educational area.