Crude Oil Price Forecast: Overextension May Prompt Short-Term Pullback

Testing Recent Highs

Crude oil tested recent highs on Tuesday, with a 19-day high of $118.29. The 88.6% Fibonacci retracement at $114.61 was exceeded, signaling strength. Also, crude oil is on track to end the session with a new highest closing price for this larger advance and the highest daily closing price since June 2022. This price behavior shows buyers remain in charge, suggesting a new high above the March high of $119.54 is possible.

Overextension and Support Levels

Despite continued bullish signs, there are also indications that the advance may be overextended and due for a minor correction before resuming the trend. Traders will be watching pullbacks closely for signs of support in expectation of bullish continuation. Key dynamic support levels are defined by the 10-day moving average at $102.84 and the 20-day moving average at $98.66. Both indicators were recently confirmed as support during higher swing lows.

Structural Support and Technical Indicators

Meanwhile, key structure support is at the recent higher swing low and weekly low of $97.31. The long-term chart for crude oil suggests the potential for higher prices over time. The question is whether new high prices will follow a period of consolidation or a pullback first. Certainly, price is overextended on the upside, as reflected by extreme overbought readings in the relative strength index (RSI) on the weekly chart, and the bearish RSI divergence seen in the daily chart. Each timeframe suggests that crude oil could use a correction of some degree before continuing.

Breakout Confirmation and Targets

Nonetheless, a decisive advance above the high of $119.54 triggers a continuation of the bull trend. The breakout will be confirmed with a daily close above that level, putting crude oil on track for initial short-term targets of $127.63 and $131.32.

ABCD Pattern and Pullback Potential

Tuesday’s advance essentially completed a 127.2% projected Fibonacci target of $118.62 for a rising ABCD pattern. Given the subsequent bearish reaction, it appears the market has acknowledged this target. With that target above the 88.6% Fibonacci retracement level at $114.61, it could easily lead to a pullback to test support near the 10-day moving average, now at $102.84 and rising. This return to support would show the balance between bullish continuation and necessary short-term corrections.