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Analyzing Volatility in Crude Oil Prices: What Does It Mean?

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Volatility in crude oil prices

So far, US crude oil prices implied that volatility peaked on February 12, 2016, and bottomed on March 22, 2016, in 2016. To learn more, read the previous part of the series. Crude oil prices implied that volatility increased after the release of the US crude oil inventory report during the first two months of 2016. Read US Crude Oil Inventory Hit the Highest Level Ever: What’s Next? to learn more about the US crude oil inventory.

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US crude oil inventory release

The rise in crude oil implied that volatility increased after the release of the US crude oil inventory report during first two months of 2016. This was due to the negative effect of burgeoning crude oil inventories on crude oil prices. However, crude oil prices implied that volatility decreased during late February and March. Why? This is likely due to market participants factoring in record US crude oil inventory data and other factors such as major producers agreeing to a freeze production. This stabilized the prices.

Impact on stocks and ETFs

Record US crude oil inventory impacts crude oil prices. Multiyear low crude oil prices have a negative impact on oil and gas producers’ margins like Ultra Petroleum (UPL), Laredo Petroleum (LPI), Denbury Resources (DNR), and Carrizo Oil & Gas (CRZO).

The contango market and record US crude oil inventory influence crude oil tanker companies like Nordic American Tankers (NAT), Teekay Tankers (TNK), and DHT Holdings (DHT),

The roller coaster ride in crude oil prices impacts ETFs like the PowerShares DWA Energy Momentum (PXI), the Fidelity MSCI Energy (FENY), the First Trust Energy AlphaDEX Fund (FXN), the VelocityShares 3x Inverse Crude Oil ETN (DWTI), and the Direxion Daily Energy Bear 3x ETF (ERY).

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