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Where US Crude Oil Could Head by the End of March

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Oil’s implied volatility

On March 21, US crude oil’s implied volatility was 24.9%, which was 6.7% below 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 ~128.8%. Crude oil’s implied volatility has fallen ~66.9% since February 11, 2016.

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Price forecast

Between March 22 and March 29, US crude oil futures should close between $58.42 and $61.54 per barrel 68.0% of the time. The forecast is based on crude oil’s implied volatility of 24.9%, and it assumes a normal distribution of prices. On March 21, US crude oil May futures fell 0.4% to $59.98 per barrel. Profit-booking might be behind the small decline in US crude oil prices.

Equity indexes like the S&P 500 Index (SPY) and Dow Jones Industrial Average Index (DIA) are sensitive to any changes in oil prices.

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