NEW YORK ( TheStreet) -- Crude prices will remain highly volatile because of the temperature forecast for this summer and the impact of an active hurricane season.

The National Oceanic and Atmospheric Administration (NOAA) is forecasting an "active to extremely active" hurricane season and has given a 70% probability for hurricanes in the Atlantic basin this season.

World oil demand is expected to surpass supply during the third quarter, as per an OPEC forecast. Demand and supply are pegged at 85.76 and 85 million barrels per day, respectively. Revaluation of Yuan would lead to increased crude oil buying from China during the quarter.

In addition, the U.S. government plans to ban deep water drilling, post the oil spill crisis involving BP ( BP) in the Gulf of Mexico. The International Energy Agency (IEA) forecasts U.S. crude oil supplies to decline by 300,000 barrels a day if the ban extends for over two years. The BP oil spill has disrupted oil drilling in 33 deep-water sites.

However, concerns regarding the euro zone crisis and China's attempts to prevent its economy from overheating may cap the upside in crude oil. Overall, the trend is moderately bullish for crude during the next quarter.

The crucial resistance for NYMEX crude is at $87.15 per barrel. If the market sustains below this level, we could see prices moving towards $64.24 and $58.32 levels. As per Fibonacci principle, the market is currently witnessing crucial resistance at 50% of retracement. Crude prices on the NYMEX were on a trend reversal during the second quarter, and prices tumbled to $64.24 per barrel levels from a high of $87.15, to close the quarter at $78.24 levels. The market breached trend line support at $76 and tested lows at $64.24 levels.

Second-Quarter Highlights:

There has been an increasing correlation (0.6) between crude oil prices and the equity market. On an average, NYMEX crude oil prices stood at $84.5 in April and dropped to $74.11 in May. Investor sentiment about the economic recovery and industry observers concerned about the European debt crisis pressured the market.

During the quarter, market values of major oil companies slumped following declines in crude oil prices and oil rig regulations in the aftermath of the BP oil spill. BP led the pack of oil giants, declining 49.4% in the second quarter.

Other majors Exxon Mobil ( XOM), Chevron ( CVX), ConocoPhillips ( COP), and Total ( TOT) fell 14.8%, 10.5%, 4.1%, and 23.1%, respectively.

Other oil companies Suncor Energy ( SU), Marathon Oil ( MRO), and Hess ( HES) lost 9.5%, 1.7%, and 19.5% of their respective market values.

April: Crude oil prices rallied to 18-month highs of $87 per barrel on positive U.S. economic data. However, Greece continued to draw attention with investors apprehensive about the future of the euro. The ash cloud following the volcanic eruption in Iceland disrupted air traffic in Europe causing a brief drop in oil prices as the demand for aviation fuel plummeted. An explosion in an oil rig in the Gulf of Mexico resulted in the death of 11 BP workers, besides leading to a catastrophic oil spill.

Complaints filed by the SEC against Goldman Sachs ( GS) continued to inject volatility in the market. S&P downgraded credit ratings for Spain and Portugal weighing down further on oil prices.

May: The euro zone's ¿110 billion bailout package failed to sustain investor confidence resulting in the biggest weekly drop in oil prices, nearly 13%. The EU and IMF attempted to build investor confidence by funding a ¿720 billion package to countries facing economic instability.

U.S. Commodity Futures Trading Commission (CFTC) announced regulations to limit speculative trading in energy commodities, reducing excessive volatility in the energy markets. China's announcement of the country's commitment to investments in Europe boosted crude prices.

June: Early during the month, prices remained relatively low. The Fed's indication of a "moderate pace" in the US economy pressured crude prices. However, the decline in crude inventories as reported by the DOE at NYMEX delivery point in Cushing, Oklahoma limited the fall. In addition, China's flexible Yuan policy from the fixed peg versus the dollar supported oil prices.

President Obama has ordered BP to set up a $20 billion fund to finance claims by local businesses affected by the spill. The oil spill in the Gulf turns into the worst U.S. environmental disaster, surpassing Exxon's Valdez oil spill in 1989.

Despite weak housing data from the U.S., crude oil traded steadily at the end of the second quarter on the speculation of recovery in oil demand during the second half of the year.
Karvy Global Services (www.karvyglobal.com), a subsidiary of the Karvy group (www.karvy.com), provides specialized research in asset classes including stocks, mutual funds and insurance to leading Wall Street firms.