Crude Oil Price Forecast: Bull Flag Pattern Breakout Potential

Crude oil continued to trace out a small potential bull flag pattern on Thursday as it traded outside day and down for the day. It remains poised for a potential breakout of the flag that has been forming around support of both the 20-Day MA (purple) and a trendline (purple) falling across the top of recent consolidation.

A breakout above the top line of the flag triggered today but it was quickly hit with selling pressure that will likely leave crude oil down for the day and in a weak position. Nonetheless, if the integrity of the flag is maintained the potential for an upside breakout remains.

Flag Breakout Above 71.41

A decisive rally above the top of the flag at 71.41 will trigger a breakout. The prior interim swing high at 71.79 should then easily be exceeded if there is upside momentum. That would put the recent swing high at 73.27 as an initial upside target. However, a breakout of the bull flag would solidify the recent reclaims of the 20-Day and 50-Day MAs and set the stage for improved bullish sentiment. Higher initial targets following a flag breakout include the 61.8% Fibonacci retracement at 74.42 and the 78.6% retracement at 76.47.

Larger Patterns Show Downward Pressure

Stepping back to consider the larger pattern, the fractal nature of the market is shown by the recent small symmetrical triangle consolidation pattern that formed following a larger symmetrical triangle. On an annual basis, crude oil looks likely to close negative for 2024 and at a lower annual closing price than 2023.

This would be the second year in a row that crude ended the year lower than the year before. It reflects the bearish nature of the breakdown from the large symmetrical triangle in September and subsequent bearish small symmetrical triangle. The small triangle is considered potentially bearish since it is contained within a larger downtrend price structure, and it formed below prior support and now resistance that is represented by the lower boundary line of the triangle.

Price volatility has compressed the past couple of months during the consolidation phase. This could set the stage for a spike in volatility if the breakout from the small triangle starts to see greater interest. A bullish breakout of the flag would go a long way towards attracting buyers.

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