Crude Oil Price Forecast: Volatility Returns as Crude Tests Resistance

A Powerful Rally Meets Its First Major Test

WTI crude oil extended gains to a new high of $94.34 on Thursday, reaching a key target zone. The combination of the 61.8% Fibonacci retracement of the prior decline at $93.69 and an interim lower swing high at $94.98 generates the potential resistance zone. As of the day’s high, crude oil had advanced by as much as 39.3% from the recent bottom and higher swing low of $67.73. Buyers remain in control at the time of writing, leaving the resistance zone open to an upside breakout. A sustained move above this zone would signal that buyers are maintaining control and potentially extend the powerful advance that began from the July low.

Path Toward $100

A downtrend line marks key dynamic resistance, and it is not much higher, near $96.69 as of Thursday. However, since the line is falling, it will represent potential dynamic resistance at lower levels going forward. If crude oil can reclaim the downtrend line, its next upside target is a lower swing high of $99.29 from June and the 78.6% Fibonacci retracement of the prior decline at $100.75. A sustained recovery of that higher target zone would be needed to indicate a bullish continuation. Therefore, the $96.69 downtrend line and the $99.29-$100.75 target zone represent the next major hurdles if Thursday’s resistance zone is decisively cleared.

Where the Rally Could Lose Momentum

If a pullback occurs from Thursday’s high, key support is first at the session’s higher daily low of $88.16, followed by the more significant 50-day moving average near $84.60. Since that average marked dynamic support for the prior advance, a confirmed reclaim of the 50-day moving average suggests that further strength should follow a test of that indicator. Also, given its significance as a trend indicator, a drop below it would show a weakening trend rather than one that is building strength. Therefore, the $84.60 area becomes an important test of whether any pullback is merely corrective or signals that upward momentum is beginning to fade.

Volatility Could Decide the Next Move

As discussed previously, once the recent bearish correction completed with the early July low of $67.73, there was the possibility of another high-volatility move, since similar moves had been seen twice since a multi-year breakout triggered in early March and led to a spike high of $199.54. From the low of the breakout day at $69.32 to that peak, crude oil had gained approximately 72% in only six days.

That level of advance was unsustainable, resulting in an eventual correction to the July higher swing low. The current advance has already produced another substantial gain from $67.73, bringing the market back into a key resistance zone. As a result, the reaction to the $93.69-$94.98 area may be critical in determining whether bullish momentum can continue or whether resistance triggers a pullback or consolidation.

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