Possible Downside for US Crude Oil Next Week


Dec. 4 2020, Updated 10:53 a.m. ET

Oil’s implied volatility

On March 8, 2018, US crude oil’s implied volatility was at 23.3%. On the same day, oil’s implied volatility was 1.3% below its 15-day moving average.

The above chart shows the inverse relationship between oil and implied volatility. Since US crude oil active futures fell to their 12-year low in February 2016, US crude oil’s implied volatility has declined 69%. During this period, US crude oil active futures rose 129.4%. The inverse relationship can be seen frequently in the above chart.

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Price forecast

On March 9–15, 2018, there’s a 68% chance that US crude oil active futures’ closing price could fall between $58.18 and $62.06 per barrel. The price range depends on the assumed normal distribution of oil prices and current implied volatility of 23.3%.

On March 8, 2018, US crude oil futures closed at $60.12 per barrel. So, US crude oil below $60 might have a negative on impact investors in ETFs like the United States Oil ETF (USO), the ProShares Ultra Bloomberg Crude Oil (UCO), the United States 12 Month Oil (USL), and the PowerShares DB Oil ETF (DBO). In the five trading sessions to March 8, US crude oil active futures fell 1.4%. The ETFs’ price performances during this period were:

  • USO fell 1.6%
  • UCO fell 3.2%
  • USL fell 0.4%
  • DBO fell 0.2%

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