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Energy Investors: What Happened Last Week?

PART:
1 2 3 4 5
Part 4
Energy Investors: What Happened Last Week? PART 4 OF 5

Will Crude Oil Be Less Volatile This Week?

US crude oil’s implied volatility

Crude oil’s (USO) (OIIL) (USL) (SCO) implied volatility was 24.8% on February 10, 2017—9.8% below its 15-day average.

Will Crude Oil Be Less Volatile This Week?

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Crude oil’s implied volatility rose to 47.9% on November 11, 2016. Since then, its implied volatility has fallen 48.2%. During that period, US crude oil active futures contracts rose 17.5%. From February 3 to February 10, 2017, crude oil’s implied volatility fell 7.6%. West Texas Intermediate crude oil rose 0.1% during the week.

As you can see in the above graph, crude oil prices and implied volatility are inversely related. When prices rise steadily, implied volatility tends to fall. On the other hand, sharp falls in prices saw implied volatility spike.

In Part 1 of this series, we looked at the factors that impacted crude oil prices in the previous week.

Crude oil price forecast

On the basis of a normally distributed bell curve, applying a standard deviation of 1.0 and an implied volatility of 24.8%, US crude oil March delivery futures could close in the range of $52.01–$55.71 per barrel in the next seven days. The probability of crude oil prices within this price range is 68.0%.

Energy ETFs

Crude oil–related sentiment can impact ETFs such as the United States Brent Oil ETF (BNO), the PowerShares DWA Energy Momentum ETF (PXI), the Vanguard Energy ETF (VDE), and the ProShares UltraShort Bloomberg Crude Oil (SCO).

In the next part of this series, we’ll take a look at natural gas’s implied volatility and its price forecast.

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