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Crude Oil Price Outlook: Testing Support Zone Following 16% Drop

by Krystal

Crude oil prices fell sharply by 16% recently, hitting new lows and testing a key Fibonacci support zone. Traders are now monitoring for signs of a possible short-term rally.

On Tuesday, crude oil prices dipped to a new low of $65.65 before finding some support and bouncing back. The price found support in a zone marked by two Fibonacci levels, with the day’s low at $65.65 and the support zone ranging from $65.45 to $65.31.

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The day’s closing price relative to this range could indicate whether the support level will lead to a short-term rally. The midpoint of today’s trading range is $67.59. If crude oil closes in the upper half of this range, it may signal a more positive outlook. Conversely, a close below $67.59 would suggest that sellers are still dominant.

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Potential for Further Decline

Despite today’s bounce, crude oil prices have dropped significantly over the past two weeks, falling by 13.08 points or 16.6% from the most recent high on August 26. This decline followed a breakdown from a large symmetrical triangle pattern that had formed over the past year, which has contributed to the aggressive selling.

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Possible Support Around $63.67

Looking ahead, the next potential support level is around $63.67. This level corresponds with the lower boundary of the triangle formation and the 141.4% extended target for a measured move, which is at $63.30. This support zone is also near the top of a long-term downtrend line, which has been a significant level since the bullish breakout in December 2021.

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Oversold Conditions

Currently, crude oil is in oversold territory on the Relative Strength Index (RSI) momentum oscillator. Given today’s bearish movement, traders will be watching for signs of a potential rebound that could lead to a counter-trend rally. Historical data shows that when crude oil hits an RSI level of 30 or below, it often signals a potential turnaround. Further clarity on a possible rally may emerge in the next few days.

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