Crude Oil Price Forecast: Key Support Levels Tested After Rally

Intraday Volatility and Short-Term Pullback

On Tuesday, crude oil pulled back from its Monday spike high of $119.54, establishing a lower daily high of $91.54 and a low of $76.83. That range was 16% and shows a continuing high volatility environment within one session. A 61.8% Fibonacci retracement of the full advance from the December low completed at $79.55, before crude oil almost hit its 10-day moving average potential support line at $76.29. Moreover, on the weekly chart, support was tested near the 200-week moving average at $76.03.

Factors Behind Resistance Formation

Since high volatility is typically followed by some degree of lower volatility, it looks like there is a good chance that crude oil will not exceed this week’s high immediately. Why might crude oil have found a top that could sustain for a while? The sharp rally generated by the fear of oil production and delivery disruption due to the Iran war was a primary culprit.

The advance hit a 78.6% Fibonacci retracement of the full downtrend that formed after the 2022 peak of $131.31. There was also a measured move completed. Note that the upswing that led to the 2022 peak saw a 109.2% increase in the price of crude oil, while the current advance found resistance after a similar percentage move. Two resistance indicators, followed by a decline, confirm that resistance was significant.

Long-Term Support and Trend Considerations

Crude oil could pull back all the way to the channel breakout area around $69.00 and still maintain the long-term trend reversal pattern. However, there are certainly higher price areas worth watching for signs of support. A key initial dynamic support indicator is the 200-week moving average. This is due to its long-term nature and that it was clearly recognized by the market as both support and then resistance over the past couple of years.

There is also the neckline of a large double bottom pattern at $78.44. Once prior resistance shows as support, another bounce may follow. Also, a daily close below either the neckline or 200-week average, would show short-term weakening and may lower the likelihood of testing upside resistance areas again.

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