Crude Oil Price Forecast: Tight Range Signals Potential Volatility Ahead

Crude oil continued to consolidate just above the 20-Day MA on Thursday. It broke out of a consolidation pattern last week and has since struggled to retain momentum from the breakout. Nonetheless, it remains above the top trend line of the pattern that marked the top of consolidation, and it remains above the 20-Day line that is now converging with the trendline. Subsequently, an additional sign of strength was seen on a move above the 50-Day MA.

Stuck With Range From 69.42 to 71.41

Two key near-term price levels to watch include potential support around the 20-Day MA, now at 69.42, and resistance at last week’s high of 71.41. Although a decline below the 20-Day line is a sign of weakness, the top trendline is also nearby and can be watched in conjunction with the moving average line as a potential support area. In this case, both moving averages are being used as a guide, but they are within a consolidation pattern, so their current significance is not the same as if crude oil was in a trending environment.

Breakout Above 71.41 Leads to 73.27

If the 71.41 high is exceeded, the November 22 swing high becomes the next target, and it will likely be reclaimed. A breakout above 71.41 would confirm strength and should increase the chance that the price of crude can keep rising. Also, on the larger time frame weekly chart (not shown), the 20-Week MA at 71.35 matches the November high pivot giving it a greater significance if a breakout occurs.

If the 71.41 high is exceeded, then the 50% retracement area at 72.97 would be the next upside target. It matches with the November swing high at 73.27. Further up is the 61.8% Fibonacci retracement at 74.42, followed by the bottom and top boundary lines of a large symmetrical triangle pattern. Around the same price zone is the 78.6% retracement level at 76.47.

Lower Volatility, Leads to Higher Volatility

Since crude has been consolidating recently into a tight trading range, there is the potential for a spike in volatility once the range has been cleared. A somewhat downward bias remains given the series of lower swing highs and the breakdown from a large symmetrical triangle pattern at the beginning of September. The impact of the pattern and breakdown is still being felt given that recent consolidation has occurred below the triangle.

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