Where US Crude Oil Prices Could Head Next Week


Oct. 9 2017, Updated 2:39 p.m. ET

US crude oil’s implied volatility

On October 5, 2017, the implied volatility of US crude oil (USO) (DBO) (OIIL) November futures was at 25.1%, or 1.2% above the 15-day average.

In most instances, oil prices and their implied volatility have moved in opposite directions. In the trailing week, US crude oil prices fell 1.5%, while its implied volatility rose 1.6%.

Similarly, when US crude oil prices were at their 12-year low on February 11, 2016, the implied volatility spiked to 75.2%. Between February 11, 2016, and October 5, 2017, the implied volatility fell 66.6%. There was a 93.8% jump in US crude oil active futures during this period.

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Where oil prices could go next week

In the next seven days, there’s a 68% chance that US crude oil futures could close between $49.02 and $52.56 per barrel. This price range was calculated by assuming that prices are normally distributed and using crude oil’s implied volatility of 25.1% and a standard deviation of one.

If US crude oil prices fall below the $50 mark, it could be important for equity indexes such as the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA). Although in the trailing week, the correlation was negative, sentiment surrounding oil prices could be vital for these equity indexes because oil is a growth-driven asset.

Energy ETFs like the Fidelity MSCI Energy ETF (FENY) could also be impacted.


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