Is $60 Achievable for US Crude Oil Next Week?


Dec. 25 2017, Updated 7:34 a.m. ET

Implied volatility

On December 21, 2017, US crude oil futures’ implied volatility was 15.6%, the lowest seen since September 2, 2014. In the last trading session, the implied volatility was 17.5% below its 15-day average.

Supply-glut concerns dragged US crude oil (UCO) (DBO) (OIIL) futures to a 12-year low on February 11, 2016, with an implied volatility of 75.2%. From this multiyear low, oil prices rose more than 100%, while their implied volatility fell 79.3%. This inverse relationship between crude oil and its implied volatility is shown in the chart above.

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Oil prices in the next week

Assuming that prices are normally distributed with an implied volatility of 15.6%, US crude oil active futures could close between $57.10 and $59.62 per barrel between December 22 and December 28, 2017. For this price range, the probability is 68% with a standard deviation of one.

On December 21, 2017, US crude oil February futures closed at $58.36 per barrel. If US crude oil moves towards the $60 level, it could benefit the S&P 500 (SPY) and Dow Jones Industrial Average (DIA) because these indexes have exposure to energy stocks. The Fidelity MSCI Energy ETF (FENY) and the other energy ETFs discussed in Part 3 could also gain with oil’s rise.


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