Where US Crude Oil Could Be in Early April



Oil’s implied volatility

On March 28, US crude oil’s implied volatility was 25.8%—on par with its 15-day average. Usually, lower implied volatility supports oil prices. You can see the inverse relationship between oil prices and oil’s implied volatility in the following chart. Since reaching a 12-year low in February 2016, US crude oil active futures have risen ~126.2%. Crude oil’s implied volatility has fallen ~65.7% since February 11, 2016.

Price forecast

On March 29–April 5, US crude oil futures should close between $57.70 and $60.90 per barrel 68.0% of the time. The forecast is based on crude oil’s implied volatility of 25.8% and assumes a normal distribution of prices. On March 28, US crude oil May futures fell 0.2% and settled at $59.3 per barrel.

Any changes in oil could be important for equity indexes like the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA). The sentiments in oil and equity markets are often related.

Impact on ETFs

These price limits could be important for oil-tracking ETFs like the ProShares Ultra Bloomberg Crude Oil ETF (UCO) and the United States 12-Month Oil ETF (USL). In the trailing week, US crude oil May futures fell 1.1%, UCO fell 1.5%, and USL fell 1%.

More From Market Realist